This calculator is based on standard accounting principles used to determine the cost of goods sold.
Welcome to the Cost of Goods Sold (COGS) Calculator. This tool quickly determines the total cost incurred by a business to produce the goods or services that were sold during a specific period.
Cost of Goods Sold Calculator
Calculated Cost of Goods Sold
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Cost of Goods Sold Formula
COGS = Beginning Inventory + Purchases – Ending Inventory
Formula Source: Investopedia – Cost of Goods Sold, AccountingCoach – COGS
Variables Explained
- Beginning Inventory: The value of all stock a business has on hand at the start of an accounting period.
- Purchases During Period: The total cost of all new inventory purchased during the accounting period. This often includes freight and other direct costs.
- Ending Inventory: The value of all stock remaining on hand at the end of the accounting period.
What is Cost of Goods Sold (COGS)?
Cost of Goods Sold (COGS) is a crucial metric in financial accounting, representing the direct costs attributable to the production of the goods or services sold by a company. These direct costs include the cost of materials and direct labor used to create the product.
COGS is important because it is subtracted from revenue to calculate a company’s gross profit. A lower COGS generally leads to a higher gross profit, which indicates better operational efficiency. It’s listed on a company’s income statement and is vital for evaluating profitability.
It’s important to note that COGS only includes direct costs, not indirect costs like distribution, sales, or general administrative expenses (operating expenses).
How to Calculate COGS (Example)
Follow these steps to calculate the Cost of Goods Sold for a quarter, using these figures:
- Beginning Inventory: $50,000
- Purchases: $150,000
- Ending Inventory: $30,000
- Step 1: Determine Goods Available for Sale (GAS). Add the beginning inventory to the purchases made during the period.
$50,000 (Beginning) + $150,000 (Purchases) = $200,000 (GAS) - Step 2: Subtract Ending Inventory. Subtract the value of the ending inventory from the Goods Available for Sale.
$200,000 (GAS) – $30,000 (Ending Inventory) = $170,000 - Step 3: State the Result. The Cost of Goods Sold (COGS) for the period is $170,000.
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Frequently Asked Questions (FAQ)
Q: Is COGS considered an expense?
A: Yes, COGS is classified as an expense on the income statement, directly related to the revenue generated.
Q: What is included in “Purchases During Period”?
A: This includes the cost of raw materials, direct labor, and any overhead directly associated with the manufacturing process, such as freight-in.
Q: Why is Ending Inventory subtracted?
A: Ending inventory represents the goods that were *not* sold. Since COGS only includes costs for *sold* goods, the unsold inventory cost must be subtracted from the total goods available for sale.
Q: Does COGS include selling and administrative expenses?
A: No. Selling, General, and Administrative (SG&A) expenses are separate operating expenses and are not included in the calculation of COGS.