Cost of Goods Soldis a figure which reflects the cost of raw materials used to produce a product to sell to customers. COGS, as it is sometimes called, is the direct costs of producing a product for sale. The calculation for COGS for a retail business is:
- Beginning inventory ($500)
- Plus cost of goods purchased $800
- Equals goods available for sale ($1300)
- Less Cost of Goods sold ($700)
- Equals Ending Inventory ($600)
The calculation of COGS varies by industry. For example, a retail business buys products, marks them up, and resells them. A manufacturer buys raw materials, turns them into finished products and sells them.
Cost of Goods Sold is part of the calculation of gross revenue on your business tax form., depending on your type of business.
