Cost of Goods Sold (COGS): Formula & Example
Definition
Cost of goods sold (COGS) is the direct cost of the goods a business sold in a period: Opening stock + Purchases + Direct expenses − Closing stock.
| Term | Cost of goods sold (COGS) |
|---|---|
| In Hindi | बेचे गए माल की लागत |
| Area | Accounting |
| Search phrase | cost of goods sold |
| Try it | Inventory turnover calculator |
बेचे गए माल की लागत — हिंदी में अर्थ
बेचे गए माल की लागत (COGS) किसी अवधि में बेचे गए सामान की सीधी लागत है: प्रारंभिक स्टॉक + खरीद + प्रत्यक्ष खर्च − अंतिम स्टॉक।
COGS formula
COGS = Opening stock + Purchases + Direct expenses (freight inward, direct labour, power for production) − Closing stock. Sales − COGS = Gross profit.
COGS for a manufacturer
For a manufacturer, COGS is the cost of production of the goods sold — materials consumed, direct labour and factory overheads — adjusted for the change in finished goods and work-in-progress stock. Office, selling and finance costs are not part of it.
Example
Opening stock ₹8 lakh + purchases ₹60 lakh + direct expenses ₹12 lakh − closing stock ₹10 lakh = COGS ₹70 lakh.
Related tools and guides
Frequently asked questions
What is the full form of COGS?
Cost of Goods Sold.
How do you calculate cost of goods sold?
Opening stock + purchases + direct expenses − closing stock.
Is salary part of COGS?
Direct labour on production is; office and sales salaries are not.
Why does COGS matter for inventory?
Inventory turnover ratio is COGS divided by average inventory — the standard measure of how fast stock moves.
Related terms
- Accounts receivableAccounts receivable is the money customers owe a business for goods or services already supplied on credit. It is shown as trade receivables (debtors) under current assets.
- Accrual vs cash basis of accountingUnder the accrual (mercantile) basis, income and expenses are recorded when they are earned or incurred, whatever the payment date. Under the cash basis, they are recorded only when cash is actually received or paid.
- Balance sheetA balance sheet is a statement of what a business owns (assets) and what it owes (liabilities and owners' equity) on a particular date. Total assets always equal total equity plus liabilities.
- Cash conversion cycleThe cash conversion cycle (CCC) is the number of days between paying for raw material and collecting cash from the customer for the finished goods: days inventory outstanding plus days sales outstanding minus days payables outstanding.
- Contra entryA contra entry is a transaction between cash and bank accounts of the same business — such as cash deposited into the bank or cash withdrawn for office use — where both the debit and the credit side are cash or bank.
- Contribution marginContribution margin is selling price minus variable cost. It is the amount each sale contributes first towards fixed costs and then to profit; as a percentage of sales it is called the contribution margin ratio or P/V ratio.