How to calculate Cost of Goods Sold (COGS) (2024)

FAQs

How to calculate Cost of Goods Sold (COGS)? ›

What's the basic COGS formula? For retailers, to calculate your cost of goods sold, take the cost of your beginning (initial) inventory, add additional purchases, then subtract your ending inventory. This gives you the amount you spent on sold stock.

COGS = the starting inventory + purchases – ending inventory. Beginning inventory is the value of the product inventory that you started with. It's usually the same number recorded in the previous ending inventory.

The cost of goods available for sale equals the beginning value of inventory plus the cost of goods purchased. The cost of goods sold equals the cost of goods available for sale less the ending value of inventory.

To determine the cost of goods sold, the business simply multiplies the average cost per unit by the number of units that were sold during the period. For example, if the business sold 50 units during the period, the cost of goods sold would be $500 ($10 average cost per unit x 50 units).

COGS = Beginning Finished Goods Inventory + Cost of Goods Manufactured – Ending Finished Goods Inventory.

The formula to calculate the center of gravity is CoG = (ΣD* W) / ΣW. In words, this formula is — the location of the center of gravity can be found by summing (Σ) the multiplication of the distance by the weight and dividing it by the summation of all weights.

Cost of Goods Sold = Beginning Inventory + Purchased Inventory - Ending Inventory.

COGS = Beginning Inventory + Purchases − Ending Inventory

This calculation will provide you with the cost of the inventory that was sold during the period, helping you understand the direct costs associated with the products you've moved.

COGS Example A: The Woodworker

By the end of the year, your Ending Inventory (unsold materials) is $2,000. In this example, your COGS as a woodworker for the financial year is $8,000. This is the actual cost incurred to produce the wooden goods sold during the year.

What is the cost of goods sold for dummies? ›

Cost of goods sold (COGS) is calculated by adding up the various direct costs required to generate a company's revenues. Importantly, COGS is based only on the costs that are directly utilized in producing that revenue, such as the company's inventory or labor costs that can be attributed to specific sales.

COGS percentages are determined by taking the COGS and dividing it by the revenue. For example, if the COGS for beer that week was $1,000 and $4,000 of beer was sold that week, the COGS percentage for beer would be 25%.

Instead, the cost of goods sold is computed as follows: cost of beginning inventory + cost of goods purchased (net of any returns or allowances) + freight-in - cost of ending inventory. This account balance or this calculated amount will be matched with the sales amount on the income statement.

At a basic level, the cost of goods sold formula is: Starting inventory + purchases − ending inventory = cost of goods sold. To make this work in practice, however, you need a clear and consistent approach to valuing your inventory and accounting for your costs.

To calculate the cost of goods available for sale, you add the total value of current inventory to the cost of producing that inventory. For example, if a business has $5,000 worth of products that are ready to sell and those products cost $3,000 to produce, their total cost of goods available to sell is $8,000.

Cost of goods sold, or “COGS” for short, refers to the amount of money your business spent to produce or procure the products that you sold. Most commonly, this includes the cost of raw materials, factory overheads, packaging, and direct labor.

You can find your cost of goods sold on your business income statement. An income statement details your company's profits or losses over a period of time, and is one of the main financial statements. On your income statement, COGS appears under your business's sales (aka revenue).

Cost of sales = (Beginning Inventory + New Inventory) – Ending Inventory. You'll need to know the inventory cost method that your business or accountant is using. Different approaches are used depending on how your company manages its costs, which impacts the value of cost of sales.