1. What Is Cost Of Goods Sold?

Cost Of Goods Sold (COGS) represents the direct costs attributable to the production of goods sold by a company. This includes the cost of materials and direct labor used to create the product.

2. How Does The Calculator Work?

The calculator uses the COGS formula:

Where:

• Opening Stock — Value of inventory at the beginning of the period
• Purchases — Additional inventory purchased during the period
• Closing Stock — Value of inventory at the end of the period

Explanation: This formula calculates the actual cost of inventory that was sold during a specific accounting period.

3. Importance Of COGS Calculation

Details: Accurate COGS calculation is crucial for determining gross profit, assessing business profitability, tax reporting, and making informed pricing decisions.

4. Using The Calculator

Tips: Enter opening stock, purchases, and closing stock values in currency units. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is included in COGS?
A: COGS includes direct material costs, direct labor costs, and manufacturing overhead directly tied to production.

Q2: How does COGS affect gross profit?
A: Gross profit is calculated as Revenue - COGS. Lower COGS means higher gross profit margins.

Q3: What's the difference between COGS and operating expenses?
A: COGS are direct production costs, while operating expenses include indirect costs like administration, marketing, and R&D.

Q4: How often should COGS be calculated?
A: Typically calculated for each accounting period (monthly, quarterly, annually) for financial reporting purposes.

Q5: Can COGS be negative?
A: No, COGS should not be negative. A negative result indicates an error in inventory accounting or input values.