How to Calculate Cost Of Goods Sold
What is Cost Of Goods Sold?
Cost of Goods Sold (COGS) is the direct cost of producing the goods or services a company sells in a given period. It includes materials and direct labour but excludes indirect costs like marketing or rent. Gross profit = Revenue − COGS.
Step-by-Step Guide
- 1Start with opening inventory value at the beginning of the period
- 2Add all purchases and production costs during the period
- 3Subtract closing inventory value at the end of the period
- 4COGS = Opening inventory + Purchases − Closing inventory
Worked Examples
Input
Opening £10,000 · Purchases £40,000 · Closing £8,000
Result
COGS = £42,000
10,000 + 40,000 − 8,000