Chartered Financial Analyst with 20 years of experience in cost accounting, inventory valuation, and financial reporting.
The **Cost of Goods Sold (COGS) Calculator** is essential for determining a company’s profitability by measuring the direct costs attributable to the production of goods or services sold. Enter values for any three variables (Beginning Inventory, Purchases, Ending Inventory, or COGS) to solve for the missing one.
Cost of Goods Sold Calculator
Instructions: Enter values for any three of the four core parameters to solve for the missing one.
Inventory Parameters
Cost of Goods Sold Formula
The Cost of Goods Sold is calculated by the sum of inventory at the beginning of the period and purchases, minus the remaining inventory at the end of the period:
Cost of Goods Sold ($COGS$):
$$COGS = BI + P – EI$$ Formula Source: InvestopediaVariables Explained (Q, F, P, V – Parameters)
- $BI$ (Beginning Inventory, $Q$): Value of inventory at the start of the period.
- $P$ (Purchases, $F$): Total cost of inventory acquired during the period.
- $EI$ (Ending Inventory, $P$): Value of inventory remaining at the end of the period.
- $COGS$ (Cost of Goods Sold, $V$): The cost directly attributed to the goods that were sold.
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What is Cost of Goods Sold?
The **Cost of Goods Sold (COGS)** is the total expense a business incurs to produce or purchase the products it sells. For manufacturing companies, this includes the cost of raw materials, direct labor, and manufacturing overhead. For retailers, it primarily includes the purchase price of the goods sold. COGS is a crucial figure because it is subtracted directly from total revenue to calculate a company’s Gross Profit, which is a key indicator of pricing strategy and production efficiency.
Accurate COGS tracking is vital for both profitability analysis and tax purposes. If COGS is too high relative to sales, it signals that the business’s core production model may be inefficient or its sales prices are too low.
How to Calculate COGS (Example)
Assume a small retailer starts the year with \$10,000 in inventory ($BI$), purchases \$50,000 worth of new inventory during the year ($P$), and ends the year with \$15,000 left ($EI$). We solve for COGS:
- Step 1: Calculate Cost of Goods Available for Sale
Goods Available for Sale $= BI + P = \$10,000 + \$50,000 = \$60,000$.
- Step 2: Subtract Ending Inventory
$$COGS = Goods Available – EI = \$60,000 – \$15,000 = \mathbf{\$45,000}$$
The **Cost of Goods Sold** for the period is $\mathbf{\$45,000}$.
Frequently Asked Questions (FAQ)
Operating expenses like administrative salaries, rent for the corporate office, advertising costs, and sales commissions are generally excluded from COGS. These are classified as operating expenses below the gross profit line.
COGS only includes the cost of goods that were *actually sold*. Since the Ending Inventory represents goods that were *not* sold during the period, their cost must be subtracted from the total goods available for sale to accurately reflect the cost of the goods sold.
COGS is the key component. Gross Profit is calculated as: Revenue – COGS. Lower COGS directly results in higher Gross Profit, assuming revenue remains constant.
No, COGS must always be zero or positive. Goods cannot be sold for a negative cost. If the calculator returns a negative COGS, it usually indicates incorrect inputs (e.g., Purchases being negative or Ending Inventory being greater than Goods Available for Sale).