What Is the Definition of the Direct Cost of Sales?

The direct cost of sales, also called the costs of goods sold, measures how much your company spends on the products it produces. Knowing your costs helps you set a price that includes some profit -- but not so much that other competitors can undercut you.

Included Costs

  1. The direct costs include only the costs involved in making the sale and exclude any overhead or other expenses that wouldn't be incurred without the particular sale. For example, if your company sells sweaters, your direct costs include the yarn to make the sweaters, the electricity to run the machine and the transportation costs you pay to get the sweaters to the buyers, but it excludes the cost of renting the factory or paying property taxes. Alternatively, if you run a consulting business, your direct costs include what you pay your employee to go to the client but not the cost of training the employee.