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COGS Calculator Guide
Cost of goods sold is what the products you actually sold cost you. It's the line that turns revenue into gross profit, and it's the number most small businesses get slightly wrong.
COGS = Beginning inventory + Purchases − Ending inventory
$20,000 + $65,000 − $15,000 = $70,000
Then: Gross profit = Revenue − COGS
Why Subtract Ending Inventory?
Because you didn't sell it. Everything you started with plus everything you bought is what was available. Whatever's still on the shelf at the end wasn't sold, so it isn't a cost yet — it's an asset. COGS only counts what actually left.
This is the bit that trips people up: buying stock is not an expense. It's converting cash into inventory. It only becomes an expense when it sells.
What Belongs in COGS
In: raw materials, finished goods for resale, direct labour that makes the product, inbound freight, packaging that ships with the item, and manufacturing supplies.
Out: marketing, rent for your office, admin salaries, software, and distribution costs after the sale. Those are operating expenses — below the gross profit line.
The dividing question is simple: would this cost exist if I made and sold one fewer unit? If yes, it's probably COGS. If it happens regardless, it's an operating expense.
Inventory Turnover Tells You If You're Overstocked
Turnover is COGS ÷ average inventory. A turnover of 4 means you sold and replaced your entire stock four times in the period.
Low turnover ties cash up in things nobody's buying and risks obsolescence. Very high turnover means fast-moving stock — but it can also mean you're constantly out of things people wanted. Days inventory outstanding (365 ÷ turnover) says the same thing in days, which is usually easier to act on.
COGS Drives Your Margin
Gross margin is (Revenue − COGS) ÷ Revenue. At $120,000 revenue and $70,000 COGS, that's 41.7% — the share of every sale left to cover everything else.
It's also the number that sets your break-even ROAS if you advertise: 1 ÷ gross margin. At 41.7%, you need a 2.4× ROAS just to cover the cost of what you sold. See our ROAS calculator.
A Note on Costing Methods
When unit costs change, FIFO, LIFO and weighted-average give different COGS from the same physical inventory — and different tax outcomes. Which methods are permitted varies by country, and switching isn't casual. This is a conversation for your accountant, not a calculator.
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