1. What is Cost Of Goods Sold (COGS)?

COGS (Cost Of Goods Sold) is the direct costs attributable to the production of goods sold by a company. It includes the cost of materials and labor directly used to create the product, but excludes indirect expenses like distribution costs.

2. How Does the Calculator Work?

The calculator uses the COGS formula:

Where:

• Beginning Inventory — Value of inventory at start of period
• Purchases — Additional inventory purchased during period
• Ending Inventory — Value of inventory at end of period

Explanation: This formula calculates the actual cost of inventory that was sold during the accounting period.

3. Importance of COGS Calculation

Details: COGS is a key metric in determining gross profit and is used to calculate several important financial ratios. It directly impacts a company's profitability and tax liability.

4. Using the Calculator

Tips: Enter all values in USD. Beginning and ending inventory should be valued consistently (FIFO, LIFO, or weighted average). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's included in COGS?
A: Direct costs like raw materials, direct labor, and manufacturing overhead. Excludes indirect costs like marketing and distribution.

Q2: How does COGS affect gross profit?
A: Gross Profit = Revenue - COGS. Lower COGS means higher gross profit, all else being equal.

Q3: How often should COGS be calculated?
A: Typically calculated for each accounting period (monthly, quarterly, annually) for financial reporting.

Q4: What inventory valuation methods affect COGS?
A: FIFO, LIFO, and weighted average methods will produce different COGS values when prices are changing.

Q5: Is COGS the same for service companies?
A: Service companies may use "Cost of Services" instead, which includes labor and direct costs but no physical inventory.