Cost of Goods Sold is the direct cost of inventory sold during a period. For distributors, it's primarily what you paid suppliers. For manufacturers, it includes materials, direct labor, and manufacturing overhead.

How do you calculate COGS?

COGS = Beginning Inventory + Purchases - Ending Inventory. This captures the cost of products actually sold, not just purchased.

What's included in purchases for COGS?

Product cost from suppliers, freight-in, and import duties. Exclude operating expenses, sales costs, and administrative overhead.

What is a good COGS percentage?

Varies by industry. Distributors: 70-85%. Manufacturing: 50-70%. Food distribution: 75-85%. Lower COGS% means higher gross margin.

How does COGS affect gross margin?

Gross margin = (Revenue - COGS) / Revenue. A 1% reduction in COGS percentage directly increases gross margin by 1%.

Can COGS be negative?

No. If ending inventory exceeds beginning inventory plus purchases, there's a data error or inventory valuation issue.

What causes COGS to increase?

Supplier price increases, higher freight, product mix shift toward lower-margin items, inventory shrinkage, or lost volume discounts.

How often should I calculate COGS?

Monthly at minimum. Weekly tracking gives better margin visibility. Most ERPs calculate COGS automatically from inventory transactions.

What's the difference between COGS and total expenses?

COGS covers only direct product costs. Total expenses include COGS plus operating expenses (rent, salaries, marketing, etc.).

How do inventory methods affect COGS?

FIFO (first in, first out) and LIFO (last in, first out) produce different COGS. FIFO shows lower COGS during rising prices; LIFO shows higher COGS.

COGS Calculator

Calculate cost of goods sold from inventory values. Add revenue to see gross profit and gross margin alongside COGS.

Enter Your Data

Enter inventory values to calculate cost of goods sold

Industry Benchmarks: COGS

These show COGS as a percentage of revenue. Lower COGS% means higher gross margin. Distribution typically runs 70-85% COGS, leaving 15-30% gross margin.

Industry	Low	Average	High
Industrial Distribution	70%	78%	85%
Building Materials	65%	70%	75%
Food Distribution	75%	80%	85%
Manufacturing	50%	60%	70%
Wholesale Trade (Average)	72%	75%	78%
Electronics Distribution	75%	82%	88%

How to Use the COGS Calculator

Step-by-Step Instructions

Enter beginning inventory value for the period
Enter total purchases made during the period
Enter ending inventory value
Optionally enter revenue to calculate gross margin

Formulas Used

Cost of Goods Sold

COGS = Beginning Inventory + Purchases - Ending Inventory

The direct cost of inventory sold during the period.

COGS Percentage

COGS % = (COGS / Revenue) × 100

What percentage of revenue goes to direct product costs.

Gross Profit

Gross Profit = Revenue - COGS

Revenue remaining after direct product costs.

Gross Margin

Gross Margin = ((Revenue - COGS) / Revenue) × 100

Gross profit as a percentage of revenue.

Frequently Asked Questions: COGS Calculator

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