Find your cost of goods sold from beginning inventory, purchases, and ending inventory
💡 Why This Matters COGS is the direct cost of the products you actually sold — it's the foundation for gross profit, pricing decisions, and understanding how efficiently you're managing inventory.
A lower COGS relative to revenue generally signals higher gross profitability — but pushing it too low can also mean skimping on materials or labor quality, so it's worth watching alongside customer satisfaction, not just in isolation.
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COGS = beginning inventory + purchases − ending inventory. Start with what you had in stock at the start of the period, add everything you bought during the period, then subtract whatever's still sitting unsold at the end. What's left is the cost of everything that actually got sold.
COGS represents the direct cost of production — raw materials, direct labor, and manufacturing overhead tied to what you sold. Subtracting COGS from revenue gives you gross profit, which is the starting point for understanding overall profitability before operating expenses come into play.
COGS only captures direct production costs — it excludes indirect expenses like marketing, rent, and administrative salaries, which live in operating expenses instead. It also depends on accurate inventory valuation, so errors in beginning or ending inventory counts flow straight through to a wrong COGS figure.
Use COGS to calculate gross profit and gross margin, set competitive pricing, and track how efficiently you're managing production and inventory over time. Comparing COGS as a percentage of revenue period-over-period can reveal whether your production costs are creeping up relative to sales.
Example: Delta Technologies starts the period with $10,000 in inventory, purchases $25,000 more during the period, and ends with $8,000 still in stock. COGS = $10,000 + $25,000 − $8,000 = $27,000.
COGS = beginning inventory + purchases − ending inventory. Add what you started the period with to what you bought, then subtract what's left unsold at the end.
COGS typically includes raw materials, direct labor, and manufacturing overhead directly tied to production — but not indirect costs like marketing, rent, or administrative salaries.
No — COGS represents real costs incurred to produce and sell goods, so it should always come out to zero or a positive value.