What does cost of goods sold (COGS) refer to?

Cost of goods sold (COGS) refers specifically to the direct costs associated with the production of goods that a company sells during a specific period. This includes expenses such as raw materials, labor directly involved in manufacturing, and any other direct costs required to produce those goods. By focusing on these direct costs, COGS provides a clear picture of the expenses directly tied to the production process, which is critical for determining the profitability of a company's sales.

Understanding COGS is essential for evaluating a company's gross margin, managing inventory, and making informed pricing decisions. While indirect costs, selling expenses, and overall revenue are important components of a business's financial health, they do not define COGS. Therefore, option B accurately captures the essential meaning and scope of COGS in accounting.