1. What is Cost of Goods Sold?

Cost of Goods Sold (COGS) represents the direct costs attributable to the production of goods sold by a company. This amount includes the cost of materials and labor directly used to create the product.

2. How Does the Calculator Work?

The calculator uses the COGS formula:

Where:

• \( BI \) — Beginning Inventory (currency)
• \( P \) — Purchases during the period (currency)
• \( EI \) — Ending Inventory (currency)

Example: COGS = $20,000 BI + $100,000 P - $15,000 EI = $105,000

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

3. Importance of COGS Calculation

Details: Accurate COGS calculation is crucial for determining gross profit, analyzing business performance, and preparing accurate financial statements. It directly impacts net income and tax liabilities.

4. Using the Calculator

Tips: Enter beginning inventory, purchases made during the period, and ending inventory values in currency format. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is included in COGS?
A: COGS includes direct material costs, direct labor costs, and manufacturing overhead directly tied to production.

Q2: How often should COGS be calculated?
A: COGS should be calculated periodically, typically monthly, quarterly, or annually depending on the business needs and reporting requirements.

Q3: What's the difference between COGS and operating expenses?
A: COGS represents direct production costs, while operating expenses include indirect costs like administration, marketing, and research.

Q4: Can COGS be negative?
A: No, COGS should not be negative. A negative result may indicate data entry errors or inventory miscalculations.

Q5: How does COGS affect gross profit?
A: Gross profit = Revenue - COGS. Lower COGS results in higher gross profit, assuming revenue remains constant.