What role does packaging play in COGS?

Packaging plays a crucial role in the Cost of Goods Sold (COGS) because it can significantly increase overall costs. The expenses associated with packaging—design, materials, production, and transportation—are all part of the expenses incurred before a product is sold. This means that effective packaging can contribute to a higher COGS, which in turn affects the overall profitability of a business.

Investments in high-quality, attractive, or innovative packaging can enhance the perceived value of a product, potentially driving higher sales prices but also elevating the costs involved in producing and delivering the product. Therefore, while packaging can serve essential functions, such as protection and branding, it is important to recognize its impact on a company's overall cost structure and profitability.