Enter your beginning inventory, additional inventory costs (purchases, labor, overhead), and ending inventory to calculate your Cost of Goods Sold (COGS). You'll get the direct cost of producing goods sold during the period — a critical figure for measuring profitability on your income statement.
Cost of Goods Sold (COGS)
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Total Inventory Available
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COGS as % of Total Available
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Ending Inventory as % of Total Available
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Cost of Goods Sold (COGS) is a financial metric representing the direct costs incurred to produce the goods a company sells during a given period. It includes raw materials, direct labor, and manufacturing overhead directly tied to production. COGS does not include indirect expenses like marketing, administrative costs, or distribution.
The standard COGS formula is: COGS = Beginning Inventory + Additional Inventory Costs − Ending Inventory. Beginning inventory is what you had at the start of the period, additional costs are all purchases and direct production costs added, and ending inventory is what remains unsold at the period's end.
Start with your beginning inventory value, add all purchases and direct costs incurred during the period, then subtract your ending inventory. For example, if you start with $10,000, add $25,000 in purchases, and end with $8,000 in inventory, your COGS is $27,000.
Using the formula: COGS = $1,000 + $500 − $1,000 = $500. Even if the beginning and ending inventory values are equal, any purchases made during the period contribute directly to COGS.
COGS typically includes the cost of raw materials, direct labor costs, manufacturing supplies, freight-in charges, and factory overhead directly attributable to production. It excludes selling expenses, general and administrative expenses, and interest expense.
COGS cannot normally be negative in practice. A negative result would mean your ending inventory exceeds your beginning inventory plus all purchases, which would indicate a data entry error. Always double-check your inventory figures if you see a negative COGS result.
COGS is essential for calculating gross profit (Revenue − COGS) and gross margin, which are key indicators of your business's profitability. It also affects your taxable income, since COGS is deducted from revenue on your income statement. Tracking COGS helps you identify cost inefficiencies in your production process.
COGS covers only the direct costs of producing the goods you sell, while operating expenses include indirect costs like rent, utilities, salaries for non-production staff, and marketing. Both reduce net income, but they appear separately on the income statement and serve different analytical purposes.