FINANCE, BUDGETS AND CASHFLOW

Cost of Goods Sold calculator

Published 7 Jul 20233 min read

Profit is the key to success for any small business. If you’re a manufacturer, you need to have an understanding of your Cost of Goods Sold, and how to calculate it, in order to determine if your business is profitable. Here’s what you need to know, and how to calculate the Cost of Goods Sold (COGS) in your business.

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How to Use Our COGS Calculator

Using our Cost of Goods Sold COGS calculator is simple. All you need to do is enter the figure for your Beginning Inventory, add your Additional Inventory Costs and your Ending Inventory figure. The calculator will automatically calculate the Cost of Goods Sold, which will appear underneath in big, bold letters.

What is the Cost of Goods Sold?

Cost of Goods Sold, or COGS, is the direct cost of producing the items a business sells. It includes the price of the raw materials or parts, as well as the manual hours and labour costs that went into making the goods. It will also include the cost of any machines used to put the products together, electricity to run the machines, and any rent paid on a warehouse where all these things take place.

Cost of Goods Sold doesn't include indirect costs, such as the cost of the supply chain or transportation costs, inventory costs, or the cost of sales.

How to Calculate COGS

There are 5 steps to calculating your COGS.

Step 1: Figure out what the direct and indirect costs are. Direct costs are those specifically related to producing your products, such as wages of manufacturing staff and materials. Indirect costs are things like wages for other staff who work in the warehouse, equipment, rent, etc.
Step 2: Determine your starting inventory, such as stock in your possession, raw materials, finished products, etc. This will be the same amount as your ending inventory from the previous financial statements.
Step 3: Determine what was purchased or paid for during the financial period. Ensure you have kept records and invoices for everything during that time.
Step 4: Establish the Ending Inventory by taking a physical look at products you have left in your possession. If items are broken or out of date, you don’t need to include these as long as you have proof.
Step 5: Use these above figures to determine your COGS.

The COGS Calculation

The COGS calculation depends on the value of your business’ inventory. There are three aspects to the equation:

Beginning Inventory: the cash value of the business’ inventory at the start of the accounting period (Financial Year, Quarterly, Monthly).
Purchases: new stock purchased during that period, such as raw materials.
Ending Inventory: how much stock is left at the end of the accounting period.