This Cost of Goods Sold (COGS) Calculator accurately applies the fundamental accounting equation to determine the cost of merchandise or products sold during an accounting period.
Welcome to the **Cost of Goods Sold Calculator**. COGS is a crucial metric for retailers, wholesalers, and manufacturers, as it represents the direct costs attributable to the production or purchase of the goods sold by a company. This tool lets you solve for any of the four key variables—COGS, Beginning Inventory ($BI$), Net Purchases ($P$), or Ending Inventory ($EI$)—when the other three are known.
Cost of Goods Sold Calculator
Cost of Goods Sold Formula
The core relationship is:
$$ COGS = BI + P – EI $$
Where $BI + P$ is the Cost of Goods Available for Sale.
1. Solve for COGS:
$$ COGS = BI + P – EI $$
2. Solve for Beginning Inventory (BI):
$$ BI = COGS – P + EI $$
3. Solve for Net Purchases (P):
$$ P = COGS – BI + EI $$
4. Solve for Ending Inventory (EI):
$$ EI = BI + P – COGS $$
Formula Source: Investopedia – Cost of Goods Sold
Variables Explained
- COGS – Cost of Goods Sold: The direct cost of products sold during the period.
- BI – Beginning Inventory: The value of inventory on hand at the start of the accounting period.
- P – Net Purchases: The total cost of inventory bought during the period (Net of discounts/returns).
- EI – Ending Inventory: The value of inventory remaining at the end of the accounting period.
Related Calculators
What is the Cost of Goods Sold (COGS)?
The Cost of Goods Sold (COGS) is a standard accounting metric used to determine a company’s total direct costs associated with producing or acquiring products that are sold during a specific time frame. These costs include the cost of materials, direct labor, and manufacturing overhead, but exclude indirect expenses like sales force costs and general administrative overhead.
COGS is directly subtracted from Net Sales to calculate Gross Margin. Therefore, maintaining accurate COGS is critical for assessing a company’s profitability and efficiency. For most retail and manufacturing businesses, COGS is the largest operating expense.
The fundamental equation is based on the flow of inventory: the total inventory available for sale ($BI + P$) minus what is left over at the end ($EI$) must equal what was sold ($COGS$).
How to Calculate Ending Inventory (Example)
A retail store recorded **$700,000** in **COGS**. Their **Beginning Inventory** was **$150,000** and they made **Net Purchases** of **$600,000** during the year.
- Determine the Missing Variable: Ending Inventory ($EI$) is missing.
- Apply Formula: $EI = BI + P – COGS$.
- Calculate Goods Available for Sale: $BI + P = \$150,000 + \$600,000 = \$750,000$.
- Substitute Values: $EI = \$750,000 – \$700,000$.
- Determine Ending Inventory: $EI = \$50,000$. The Ending Inventory is **$50,000.00**.
- Consistency Check: Does $COGS \approx BI + P – EI$? $\$700,000 \approx \$150,000 + \$600,000 – \$50,000$. $\$700,000 = \$750,000 – \$50,000$. Yes, it is consistent.
Frequently Asked Questions (FAQ)
No. COGS only includes direct costs (materials, direct labor, manufacturing overhead). Operating expenses (like rent, utilities, and salaries for non-production staff) are accounted for separately, after Gross Margin is calculated.
Can COGS be negative?COGS is generally positive or zero. A negative COGS would imply that the company sold less than its inventory increased, or that its costs were somehow subsidized beyond zero, which is highly unlikely in standard accounting practice.
What happens if the calculated COGS is negative?If the calculated COGS is negative (meaning $BI + P < EI$), it suggests an accounting error. It physically means the goods available for sale were less than the amount of inventory remaining, which is impossible. The calculation will flag this result.
How do inventory methods (FIFO, LIFO) affect COGS?FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and Weighted Average methods determine the value assigned to $EI$ and, consequently, $COGS$. While this calculator handles the arithmetic, the specific inventory method determines the input values used.