If you price your products too high, you may see a decrease in interest and sales.
Otherwise, you could wind up losing out on profits. And just like Goldilocks, you need to find the price that’s just right for your products or services. Pricing your products and services is one of the biggest responsibilities you have as a business owner. Determine if you need to make adjustments.Knowing your business’s profits can help you: And when you know your gross profit, you can calculate your net profit, which is the amount your business earns after subtracting all expenses. If you’re spending too much on costs to produce the product or serviceĪgain, you can use your cost of goods sold to find your business’s gross profit.
So, why is your cost of goods sold so important to your business? Well, your COGS can tell you a lot of information, including: Your gross profit for the period is $32,000. Let’s say you have revenue of $50,000 for the quarter. To find gross profit, use the following formula: Gross profit is the revenue left over after you deduct the costs of making a product or providing a service. Calculating gross profitĪfter determining cost of goods sold, you can find your business’s gross profit for the period. Your cost of goods sold for the quarter is $18,000. Find your total COGS for the quarter using the cost of goods sold calculation. Your purchases total up to $7,000 for the quarter. Your business has a beginning inventory of $15,000. You record beginning inventory on January 1 and ending inventory on March 31 (end of Quarter 1). Let’s say you want to know your cost of goods sold for the quarter. Depending on your business and goals, you may decide to calculate COGS weekly, monthly, quarterly, or annually. Ending inventory: Inventory you did not sell during the periodĪfter you gather the above information, you can begin calculating your cost of goods sold.Purchases during the period: Cost of what you purchased during the accounting period.Beginning inventory: Amount of inventory left over from the previous period (e.g., month, quarter, etc.).Not sure where to get the above information to plug into the formula? No worries-here’s a breakdown of everything you need: To find cost of goods sold, use the COGS formula:ĬOGS = Beginning Inventory + Purchases During the Period – Ending Inventory Salaries and wages (other than direct labor)Ĭost of goods sold formula (COGS formula)Ĭalculating COGS is pretty straightforward.Here are a few examples of operating expenses: Essentially, operating expenses are the opposite of COGS and include selling, general, and administrative expenses.Ĭhances are, if an expense doesn’t fall under COGS, it typically falls under operating expenses. Operating expenses, or OPEX, are costs companies incur during normal business operations to keep the company up and running. But, what’s the difference between COGS vs. Again, COGS only includes the production costs.Īs a business owner, you’ve likely heard of operating expenses at some point. Do not factor things like utilities, marketing expenses, or shipping fees into the cost of goods sold. When calculating cost of the goods sold, do not include the cost of creating products or services that you don’t sell.ĬOGS excludes indirect costs, such as distribution expenses. COGS include the following costs:Ĭost of goods sold only includes the expenses that go into the production of each product or service you sell (e.g., wood, screws, paint, labor, etc.). Your cost of goods sold, also known as cost of sales or cost of services, is how much it costs to produce your business’s products or services. So, where do you begin? Start here by learning all about COGS, including the cost of goods sold formula and what you can use it for.
#Cogs stands for how to#
Before you can begin looking into your business’s profit, you need to understand and know how to calculate cost of goods sold (COGS). MHRA 'COG', All Acronyms, 12 February 2023, Bluebook All Acronyms, COG (Feb. COG, All Acronyms, viewed February 12, 2023, MLA All Acronyms. Retrieved February 12, 2023, from Chicago All Acronyms.
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