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:

• 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 critical financial metric used to determine gross profit and is essential for accurate financial reporting, tax calculations, and business decision-making.

4. Using the Calculator

Tips: Enter all values in USD. Beginning inventory and purchases should reflect actual costs, while ending inventory represents the value of unsold goods.

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 does COGS affect gross profit?
A: Gross Profit = Revenue - COGS. Lower COGS results in higher gross profit margins.

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

Q4: How often should COGS be calculated?
A: Typically calculated monthly for management reporting and quarterly/annual for financial statements.

Q5: Can COGS be negative?
A: No, COGS should not be negative. A negative result may indicate errors in inventory tracking or calculation.