What is the cost of goods sold formula?
Cost of goods sold, or COGS, is what the products you sold cost you to buy or make. In accounting, the cost of goods sold formula is beginning inventory plus purchases minus ending inventory. Start with $12,000 of stock, buy $5,000 more and finish with $9,000 left, and your cost of goods sold is $8,000.
How do you calculate cost of goods sold?
Value all three numbers at what the goods cost you, not what they sell for. Beginning inventory is last period's ending stock. Purchases are supplier invoices plus freight in, what you paid to bring stock in, minus anything you sent back. The IRS counts freight in as cost of goods sold. If you make what you sell, add materials, labor and overhead. Rent, ads, other wages and shipping to customers are usually running costs, not cost of goods sold.
Cost of goods sold formula example
You sold 400 units at $50 for $20,000, and each cost you $20. Count units instead of stock and 400 × $20 is the same $8,000. Take $8,000 off $20,000 and gross profit is $12,000, a 60% gross margin.
Cost of goods sold vs cost of sales
Many books call the same sum cost of sales: the Business Development Bank of Canada says retailers and wholesalers use it. If you sell services, cost of sales can include the direct cost of delivering them.
Where does Shopify show cost of goods sold?
In Analytics, open Reports and pick Finances in the Category filter. "Cost of goods sold by order" lists what each order's products cost you. Shopify multiplies "Cost per item", what one unit cost you, by the units sold.
Say the formula gives $8,000 and the report $7,100. Sales made before you entered a cost add nothing to the report. A cost you change later never reaches older orders. For a product you resell, Shopify's help suggests entering what you paid the manufacturer, without taxes or shipping, so freight in counts only if you add it. Lost or damaged stock lowers your ending count, so the formula counts it as cost. A report built from sales does not.
Stock that sold nothing, with Sledge
Sledge does not work out cost of goods sold or read your product costs. In Sledge Analytics, the Signals tab shows "Stock not selling" once 10 or more products with stock have sold nothing in 30 days, with the unit count, up to three of the largest products and a "Create a bundle" button. On a paid plan, Growth Intelligence sums its suggested fixes into one dollar total, labeled "Est. potential": a sales estimate, never a cost figure.
