![]() ![]() Beginning inventory is the value of the raw materials, work-in-progress, and finished goods that a company has at the beginning of a period.How To Calculate The Cost Of Goods Sold COGS Formula COGS = Beginning inventory + Purchases - Ending inventory Non-recurring items (e.g., one-time gains or losses).Non-operating income (e.g., interest income from investments).Extraordinary items (e.g., losses from natural disasters).Selling, general and administrative expenses (SG&A), such as salaries, rent, and utilities.Generally, the COGS includes the following: An example would be machinery maintenance costs because they may not change with the production level but can vary depending on the usage. A combination of variable and fixed costs. These are costs that do not vary with the level of production or sales, such as rent, utilities, and insurance. These vary directly with the level of production or sales, such as raw materials, direct labor, and direct overhead expenses. These businesses calculate something slightly different, known as the "cost of services."Ĭalculating inventory costs is vital to know how much money you have tied up in unsold stock and what the expected return on that investment is. Your COGS also affects your taxes as it counts towards a deduction.įor businesses with no inventory (service-based companies such as law firms or business consultants), there is no COGS. ![]()
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