Final answer:
The cost of goods sold characterizes direct expenses such as raw materials and labor, is central to calculating gross profit, and does not include indirect costs like overhead expenses.
Step-by-step explanation:
When examining which of the following statements characterize the cost of goods sold (COGS), it is important to consider several aspects. First, COGS indeed represents the direct costs incurred in producing goods, which are expenses that are directly tied to the production of the goods. These include items such as raw materials and direct labor involved in their manufacture. COGS is deducted from revenue to calculate gross profit, as this figure represents the direct costs subtracted from sales revenue to assess the profitability of the goods sold.
However, the characterization of indirect costs in COGS is where some clarification is needed. While COGS focuses primarily on direct costs, it's important to note that it generally does not include indirect expenses such as overhead costs—these are usually categorized separately under operating expenses. These indirect costs are part of total costs but not typically included in COGS.
Summarizing, COGS includes the cost of raw materials and direct labor but not indirect costs like overhead expenses, and it plays a pivotal role in calculating gross profit for a company.