COGS Formula:
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Cost of Goods Sold (COGS) represents 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.
The calculator uses the basic COGS formula:
Where:
Explanation: This formula calculates the total cost of inventory that was sold during the accounting period.
Details: COGS is a key metric in determining gross profit and is used for financial reporting, tax calculations, and business decision-making.
Tips: Enter all values in USD. Beginning and ending inventory should be valued consistently (FIFO, LIFO, or weighted average).
Q1: What's included in COGS?
A: Direct material costs, direct labor, and manufacturing overhead. Excludes indirect expenses like distribution and sales force costs.
Q2: How often should COGS be calculated?
A: Typically calculated for each accounting period (monthly, quarterly, annually) depending on business needs.
Q3: What inventory valuation methods affect COGS?
A: FIFO (First-In-First-Out), LIFO (Last-In-First-Out), and weighted average methods will produce different COGS values.
Q4: Can COGS be negative?
A: Normally no, unless there's an inventory gain (ending inventory exceeds beginning inventory plus purchases).
Q5: How does COGS affect taxes?
A: Higher COGS reduces taxable income, so proper calculation is important for tax compliance.