Free tool
COGS calculator
Enter beginning inventory, purchases and ending inventory at cost to get cost of goods sold for the period.
Your inventory and purchases
Cost of goods sold
$1,200,000
- Goods available for sale
- $1,520,000
- Average inventory
- $300,000
- Inventory turnover
- 4 turns
Beginning inventory plus purchases, less what is still on hand at the end.
The formula
Cost of goods sold = beginning inventory + purchases − ending inventory
Manufacturing COGS = direct materials + direct labor + manufacturing overhead + (beginning WIP − ending WIP) + (beginning finished goods − ending finished goods)
- Beginning inventory
- Stock on hand at cost when the period opened, usually last period's ending count.
- Purchases
- Cost of stock bought in the period, including inbound freight and duties.
- Ending inventory
- Stock still on hand at cost when the period closed.
- Direct materials
- For a manufacturer: materials used in production in the period.
- Direct labor
- For a manufacturer: wages of the people making the product.
- Manufacturing overhead
- For a manufacturer: indirect production costs such as factory rent, utilities and equipment depreciation.
- WIP
- Work in progress: partly finished goods at cost. A drop in WIP adds to COGS; a build-up holds cost back.
- Finished goods
- Completed goods not yet sold, at cost. A drop adds to COGS; a build-up holds cost back.
Worked example
- Beginning inventory of $280,000 plus $1,240,000 of purchases makes $1,520,000 of goods available for sale.
- Ending inventory counts $320,000 still on hand.
- Cost of goods sold is $1,520,000 − $320,000 = $1,200,000.
- Average inventory is $300,000, so the period turned stock $1,200,000 ÷ $300,000 = 4 times.
When it applies
- A reseller working out cost of goods sold from a periodic count and purchase records.
- A maker checking production cost against stock movement, using the manufacturing formula above.
When it breaks down
- Ending inventory above beginning inventory plus purchases means a count or a purchase total is missing, so the calculator refuses it.
- Shrinkage, damage and write-offs land in cost of goods sold by this method; separate them if you need to see them.
Common mistakes
Leaving out inbound costs
Freight, duties and other landed costs belong in purchases, or cost of goods sold comes out low and margin high.
Counting at selling price
Beginning and ending inventory must be at cost, the same basis as purchases.
Including operating expenses
Rent for the shop, marketing and office wages are operating expenses, not cost of goods sold.
Skipping the WIP change
A manufacturer that builds up work in progress has spent money that has not yet become cost of goods sold.
Questions
What is the cost of goods sold formula?
Cost of goods sold = beginning inventory + purchases − ending inventory, all at cost.
How do you calculate manufacturing COGS?
Add direct materials, direct labor and manufacturing overhead for the period, then add the fall (or subtract the rise) in work in progress and in finished goods.
Is COGS the same as cost of sales?
For a business that sells goods, the two terms are used for the same figure.
What is not included in COGS?
Selling, marketing, admin and other operating expenses that do not go into making or buying the goods.
What do I do with COGS next?
Divide it by average inventory for the inventory turnover ratio, or average inventory by it for days inventory outstanding.
Related
Published by Skuvelo. Results are estimates computed from the figures you enter, not a reading of your own sales or stock.
A calculator answers once. Skuvelo keeps answering.
This tool computes one number from what you type. Skuvelo computes it continuously, for every SKU, from your own sales and stock.