definiens: or means the costs to manufacture the Licensed Produ ct . COGS shall be a per unit ( calculated annually ), which shall be comprised of the following element s which shall be calculated in accordance with GAAP : ( a ) direct l abor ( the actual cost of employees engaged in direc t manufacturing activities and quality control and qu ality assurance activities who are directly employe d in manufacturing the Licensed Product ), ( b ) direct mat erials ( the actual costs incurred in manufacturing or purchasing materials for manufacture, including freight - in cos ts, sales and excise taxes imposed thereon and cust oms duty and charges levied by government authorities, and all c osts of packaging components ), ( c ) pro rata facilit y costs ( meaning rent, property taxes, depreciation of leas eholds, utilities, spare parts, maintenance contrac ts ) for the manufacture of the Licensed Product, ( d ) manufactur ing equipment depreciation, and ( e ) document contro l, purchasing, warehouse management ( with such allocat ions to be based on estimated service levels, headc ount or square footage occupancy depending on the category ) . To the extent that the Licensed Product is source d from a Third Party manufacturer, the actual price paid to the Third Party for the manufacture and supply of t he Licensed Product, respectively, shall be the COGS, and shall include reasonable costs incurred by Company for manufacturing services necessary in support of manu facture by such Third Party . For clarity, COGS spec ifically excludes the profit margins of Company or its Affil iates