The correct answer is Opening stock + Net purchases + All direct expenses “ Closing stockImportant PointsCost of goods sold (COGS) = the number of goods purchased + expenses incurred in bringing the goods to the place of sale or expenses incurred on manufacturing the goods (also called direct expenses) - the value of the stock at the end of the financial year. We need to calculate COGS to calculate or ascertain the gross profit of the company during a year. The formula is for Gross Profit:Gross Profit = Net sales “ Cost of goods soldNet Purchases= Purchases “ Returns “ Allowances “ Discounts.