Cost of Goods Sold ( COGS ) | Investment Formula

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Cost of Goods Sold ( COGS )

Written by Kenny Foo

Tuesday, 03 March 2009 15:14

Investment Formula Description

Cost of Goods Sold ( COGS ) or cost of sales is direct costs that used to produce the goods sold by the company including the cost of the materials used in creating the goods and the direct labor costs used to produce the goods.

All the goods come with a cost.

This amount excludes indirect expenses such as sales forces costs , distribution costs, advertising costs and etc. In income statement, cost of goods sold (COGS) or cost of sales are used to deduct from revenue to obtain gross profit and it can be use to calculate gross profit margin. On other words, cost of goods sold ( COGS ) or cost of sales is a figure in income statement reflecting the costs of obtaining raw materials and producing finished goods that are sold to customers.

The basic way to obtain accurate cost of goods sold ( COGS ) or cost of sales is to get the beginning inventory of the financial period plus investory in purchases during the financial period and then deduct the total with the ending inventory of that financial period.

Investment Formula

Cost of Goods Sold ( COGS ) or cost of sales = Beginning Inventory + Inventory in Purchases- Ending Inventory

Investment Formula Example

For a food manufacturer, the cost of goods sold ( COGS ) or cost of sales will include the material costs for the foods , the labor cost to manufacture the foods and packaging. The cost of sending the foods to supermarket , the marketing expense, the cost of labor used to sell the foods are excluded from cost of goods sold ( COGS ) or cost of sales.

This food manufacturer has $200,000 of beginning inventory when the financial period starts. During this financial period, it managed to make purchases of $100,000. The ending inventory during financial period end is $50,000. The calculation for cost of goods sold ( COGS ) for this financial period as following.

Cost of Goods Sold ( COGS ) or cost of sales = Beginning Inventory + Inventory in Progress - Ending Inventory = 200,000 + 100,000 - $50,000 = $250,000

Cost of goods sold ( COGS ) for this food manufacturer for this financial period is $250,000.

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