COGS – Cost of Goods Sold

The Cost of Goods, also known as COGS or Cost of Sales, is the actual cost of the commodities sold to customers. It involves both cost of the material used for production and direct labor cost. The cost of goods sold (COGS) is shown in profit and loss account. 

 

COGS includes

  • Raw material, Storage, Freight or Shipping Charges.
  • Factory Overheads.
  • Direct Labor Cost.

 

How to Calculate the Cost of Goods Sold (COGS)?

COGS =  Opening Stock + Purchases – Closing Stock

Also, COGS = Net Sales – Gross Profit

 

Example 1

Opening Stock of a business is valued at = 25,00,000

Purchases = 10,00,000

Closing Stock valued at = 15,00,000

COGS = OS + P – CS

= 25,00,000 + 10,00,000 – 15,00,000

= 20,00,0000

 

Example 2

Net Sales = 20,00,000

Gross Profit = 10,00,000

COGS = Net Sales – GP

= 20,00,000 – 10,00,000

= 10,00,000