What is Cost of Goods Sold (COGS)?

Cost of Goods Sold (COGS) represents the direct costs attributable to the production of the goods sold by a company. This includes the cost of materials and direct labor used to create the good. It does not include indirect expenses like distribution costs and sales force costs.

Why is calculating COGS important?

COGS is a critical metric for determining a company's gross profit. It helps businesses understand their core profitability, manage inventory efficiently, and is a necessary figure for tax reporting on an income statement.

What is the difference between COGS and operating expenses?

COGS are the direct costs of producing a product (e.g., raw materials). Operating Expenses (OpEx) are the indirect costs required to run the business, such as rent, salaries for administrative staff, marketing, and utilities. COGS is subtracted from revenue to get gross profit, while OpEx is subtracted from gross profit to get operating profit.

Cost of Goods Sold (COGS) Calculator

The Story Your Inventory Tells

For any business that sells physical products, your shelves and warehouse tell a financial story. You start with some stock, buy more, and end with what's left. The value of the products that are no longer there because you sold them is your **Cost of Goods Sold (COGS)**. It's the first and most important expense to calculate.

Understanding your COGS is fundamental to knowing if your core business is profitable. This calculator doesn't just find your COGS; it takes the next logical step. By comparing it to your revenue, it also calculates your **Gross Profit** and **Gross Margin**, giving you a clear snapshot of your company's efficiency at producing and selling goods.

More Inventory & Profitability Tools

Profit Margin Calculator: Dig deeper into profitability by including operating expenses.
Inventory Turnover Ratio Calculator: Measure how efficiently you are managing and selling your inventory.
Markup Calculator: Set the right selling price for your products based on their cost.

Frequently Asked Questions (FAQ)

What is the formula for COGS?

The standard formula for calculating the Cost of Goods Sold is: COGS = Beginning Inventory + Purchases - Ending Inventory. It represents the direct cost of the inventory that was sold during an accounting period.

What costs are included in inventory value?

Inventory value should include all costs to get the items ready for sale. This includes the purchase price from the supplier, shipping and handling costs to receive the goods, and any direct labor costs involved in producing the goods.

What is Gross Profit vs. Net Profit?

Gross Profit is your revenue minus the Cost of Goods Sold (COGS). It measures how profitably you sell your products, before considering other business expenses. Net Profit (or Net Income) is what's left after you subtract *all* expenses—including operating costs like rent, marketing, and salaries—from your revenue.