Three methods can be used for the calculation of costs of goods sold, the value of COGS is dependent on the method used. The formula for calculating COGS is COGS = Beginning Inventory + Purchases during the period Ending Inventory. Cost of Goods Sold (COGS) is calculated by subtracting the inventory at the end of a period from purchases during a period and inventory at the beginning of the period. The beginning inventory refers to the amount of stock a company has at the start of the year while ending inventory is the amount left at the end of the year. Contained in the balance sheet is the inventory. A balance sheet is a financial statement of a company. It is noteworthy to also state that all the costs incurred on goods that are not sold are not calculated as part of COGS. COGS basically captures all the direct costs of goods sold at a specific period of time. Cost of labor or workmanship and cost of materials are examples of direct costs that are attributable to the production of goods. These expenses however exclude indirect expenses such as distribution costs of the products after production. The expenses of a company during the phase of manufacturing or producing products for sale are captured as Cost of Goods Sold (COGS). Indirect expenses such as sales costs are excluded from COGS.īack to: Accounting & Taxation How is Cost of Goods Sold (COGS) Used? COGS is otherwise called 'cost of sales.' Cost of Goods Sold (COGS) is referred to as a managerial and accounting process in which all the direct expenses such as material costs attributed to the production of goods are calculated. Cost of Goods Sold (COGS) refer to the total costs of the production of goods that a company puts up for sale. Update Table of Contents What are Cost of Goods Sold (COGS)? How is Cost of Goods Sold (COGS) Used? Research on Cost of Goods Sold What are Cost of Goods Sold (COGS)?īefore the end result of any production or manufacturing is attained, funds and other factors of production must be involved.
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