Cost of Goods Sold Calculator
Calculate your business's Cost of Goods Sold with our free COGS calculator. Enter beginning inventory, purchases, freight, returns, and ending inventory to find COGS. Optionally provide revenue to see gross profit and the COGS ratio.
Cost of Goods Sold (COGS) represents the direct costs of producing or purchasing the goods a company sells during a period. The formula is: COGS = Beginning Inventory + Purchases + Freight In - Purchase Returns - Ending Inventory. COGS is a critical figure on the income statement because it directly affects gross profit and, ultimately, net income.
The COGS ratio (COGS / Revenue) tells you what percentage of each revenue dollar goes toward producing or acquiring goods. A lower COGS ratio means higher gross margins. For example, a software company might have a COGS ratio of 15-25%, while a grocery store operates at 70-80%. Tracking COGS ratio over time reveals whether the business is becoming more or less efficient at delivering its products.
Accurate inventory tracking is essential for calculating COGS. Most businesses use either FIFO (First In, First Out), LIFO (Last In, First Out), or weighted average cost methods to value inventory and determine which costs are assigned to goods sold. The choice of method affects both COGS and the ending inventory value on the balance sheet, which can have significant tax implications.