Cost Of Goods Sold Calculator

Cost of Goods Sold Definition: It is all of the costs used in creating products or providing a service that has been sold. Cost of goods sold, often referred to as "COGS" or sometimes "cost of sales", is the costs associated with the production of goods sold in a company. We also have a marginal cost calculator if you'd like to calculate the total cost when the production is increased. The cost of goods sold falls into three categories.

Direct Labor

There are two types of businesses where the direct labor may differ, a business that produces products and a business that offers services. When a business produces a product the direct labor is the production crew that produces it. While for services offered it is usually a person who is charging a customer and working direct labor hours.

For a business that produces products, the direct labor consists of:
  • Assembly line workers
  • Machine Operators
  • Builders constructing a building
For a services company:
  • Consultants
  • Business Analyst
  • Lawyers
  • Tax Advisor

Direct Materials

Direct materials cost, is the cost of raw materials, specialized parts and standard materials that become the finished product product. The materials must be traceable to the product to ensure it is a direct material cost. Direct materials does not include materials that are used in the production process.

Some Examples are:
  • Flour, Salt for a Bakery
  • Flour, Sugar, Eggs for a dessert store
  • Fabric for assembling clothes

Overhead Costs

Overhead costs are costs involved in the production of a product excluding the costs of materials, third-party expenses and direct labor. It is important for a company to continue to pay overhead. It greatly helps for budgeting purposes and also helps determine what to charge for a product to make a profit.

  • Depreciation
  • Rent
  • Insurance
  • Legal Expenses
  • Accounting
Cost Of Goods Sold formula:Beginning Inventory + Purchases made during the reporting period - Ending Inventory.

How To Calculate Cost Of Goods Sold

We need 3 pieces of information to calculate COGS.
  • Beginning Inventory
  • Purchases made during the reporting period
  • Ending Inventory
Example 1:
  • We own a clothing store and we have a beginning inventory of $100,000 last month
  • Purchases during the month were $50,000
  • Last month was a pretty good month and at the end of the month our remaining inventory is $10,000
  • When we apply this to our formula we get:$100,000 + $50,000 - $10,000
  • Our cost of goods sold is $140,000
Example 2:
  • We are running a bakery, our inventory at the start of the week was $8,500
  • There was a mistake in storage and a lot of our inventory went bad, so our purchases for the week was $12,000
  • By the end of the week our remaining inventory is $1,200
  • We use our formula: $8,500 + $12,000 - $1,200 = $19,300
  • Our Cost of goods sold is $19,300

How to Use Cost Of Goods Sold Calculator

Enter your Beginning Inventory

Enter your Purchases

Enter your Ending Inventory

Cost Of Goods Sold Calculator