How to use this calculator
Select your reporting period (monthly, quarterly, or annually). Enter the value of your inventory at the beginning and end of the period, along with all purchases and production costs incurred during that time.
For retailers, you typically only need beginning inventory, purchases, freight, and ending inventory. Manufacturing businesses should also include direct labor and overhead allocated to production. Optionally enter revenue to see gross margin and COGS as a percentage of sales.
Understanding cost of goods sold
COGS represents the direct costs attributable to producing the goods a company sells. It appears on the income statement and is subtracted from revenue to determine gross profit. Understanding your COGS is essential for pricing, profitability analysis, and tax reporting.
The inventory turnover ratio tells you how efficiently you manage stock. A low turnover means capital is tied up in unsold goods, while an extremely high turnover might indicate you are frequently running out of stock and losing sales.
Frequently asked questions
What is COGS (Cost of Goods Sold)?
COGS is the total direct cost of producing or acquiring goods sold during a period. It includes materials, direct labor, and manufacturing overhead tied to production, but excludes selling and administrative expenses.
How do you calculate cost of goods sold?
Add beginning inventory plus purchases, freight, direct labor, and overhead. Then subtract ending inventory. The result is what you actually consumed or sold during the period.
What is a good gross margin percentage?
It depends on your industry. Retail typically runs 25 to 50%, manufacturing 30 to 40%, and software 70 to 90%. Compare your margin to competitors and industry averages rather than a single universal target.
What is inventory turnover ratio?
Inventory turnover equals COGS divided by average inventory. It measures how many times you sold through your stock in a period. Higher turnover generally means better efficiency and less capital tied up in unsold goods.
What is the difference between COGS and operating expenses?
COGS covers direct production costs only. Operating expenses include everything else needed to run the business: rent, marketing, office supplies, and administrative salaries. Both appear on the income statement but in different sections.