Cost of Goods Sold (COGS) is the cost of a product to a distributor, manufacturer, or retailer. Sales revenue minus cost of goods sold is the gross profit of the business. Cost of goods sold is considered an expense in accounting and it can be found on a financial statement called the income statement. Let's find out about the cost of goods sold with Giaiphapdonggoi.net!
1. What is COGS?
What is cost of goods sold?
Cost of goods sold is a company's direct cost of producing the goods it sells. This amount includes the cost of materials and direct labor costs used to create the goods. Cost of goods sold does not include indirect costs such as general and sales & marketing expenses. Cost of goods sold is subtracted from sales (sales) to calculate gross profit and gross profit margin. Higher COGS leads to lower profit margins.
The value of COGS will vary depending on the accounting standards used for the calculation.
Cost of goods sold is a cost of doing business and affects how much profit a company makes from its products.
Cost of goods sold is usually found on the income statement under the "sales" or "earnings" category. The income statement is also known as the “profit and loss statement”.
2. Items that make up cost of goods sold
Items that make up the cost of goods sold
Cost of items intended for resale.
Cost of raw materials.
The cost of the parts used to make a product.
Direct labor costs.
Supplies are used to make or sell products.
General expenses, like utilities to the production site.
Shipping prices.
Indirect costs, like distribution or sales force costs.
Container costs.
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3. Importance of COGS in business
Importance of cost of goods sold in business
So, why is COGS important to your business? Well, your COGS can tell you a lot of information, including:
What is your profit over a period of time.
If you need to change your price.
If you are spending too much money to produce a product or service.
4. Meaning of cost of goods sold
Cost of Goods Sold (COGS) means different depending on the nature of the business. In manufacturing companies, COGS refers to the direct costs to produce goods sold by a company. This amount includes the cost of manufacturing the company's products such as materials and direct labor used to create the product. In addition, all indirect production costs are included in this amount such as indirect labor, indirect materials, rent, depreciation, and maintenance. Companies typically include all manufacturing costs when calculating cost of goods sold, but exclude all selling and administrative expenses.
In trading (retail) companies, the components of the cost of goods sold to manufacturing firms are different from the components of the cost of goods sold to trading (retail) companies. In merchandise (retail) companies, cost of goods sold includes all costs and expenses directly related to the sale of goods. In these companies, Cost of Goods Sold is also known as “Cost of Sales.
To conclude, COGS, also known as cost of goods sold or cost of service. COGS is the cost to produce or sell your product or service. Cost of goods sold includes the cost of direct materials and direct labor costs used to produce or sell each good or service.
5. Formula to calculate cost of goods sold
Formula to calculate cost of goods sold
Method one
Cost of goods sold is calculated by adding the opening inventory and all inventory purchases made during the reporting period, then subtracting the ending inventory balance. Beginning inventory is the value of raw materials and finished products in stock at the beginning of the reporting period. Purchases made during the reporting period include all materials, components and goods purchased from other parties during the period. Ending inventory is the amount that is counted as existing at the end of the reporting period. The formula is:
Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold
Method two
Cost of goods purchased or sold is adjusted for changes in inventory. For example, if 500 units are produced or purchased but inventory increases by 50 units, the cost of 450 units is the cost of goods sold. If inventory is reduced by 50 units, then the cost of 550 units is the cost of goods sold.
Using COGS in other recipes
Cost of goods sold is also used to calculate inventory turnover, a ratio that indicates how many times a business sells and replaces its inventory. It reflects the level of production
