How do you calculate cost of goods sold (COGS)?

COGS = Beginning inventory + Purchases during the period − Ending inventory. For method-accurate COGS, apply a cost flow assumption: under FIFO the units sold carry your oldest purchase costs, under LIFO your newest, and under Weighted Average the blended average cost of all goods available for sale.

What is included in COGS?

COGS includes the direct costs of the goods you sold: purchase price of merchandise or raw materials, inbound freight, and direct production labor and overhead for manufacturers. It excludes indirect expenses like marketing, rent, and administrative overhead — those are operating expenses.

Does the inventory valuation method change COGS?

Yes, significantly. When costs are rising, FIFO produces the lowest COGS (oldest, cheapest units sold first) and the highest profit, while LIFO produces the highest COGS and the lowest taxable profit. Weighted Average lands in between. The same sales can produce meaningfully different gross margins depending on the method.

Cost of Goods Sold (COGS) Calculator

The classic COGS formula plus something no basic calculator offers: method-accurate COGS from your actual purchase batches.

Quick COGS Formula

COGS = Beginning Inventory + Purchases − Ending Inventory

Beginning inventory ($)

Purchases ($)

Ending inventory ($)

Method-Accurate COGS (FIFO / LIFO / Weighted Average)

Don't know your ending inventory value yet? Enter your purchase batches and units sold — this derives COGS and ending inventory under the method you choose.

Valuation method

Total units sold in the period

Purchases (oldest first)

What Is Cost of Goods Sold?

COGS is the direct cost of the products you actually sold during a period — merchandise purchase costs, raw materials, inbound freight, and (for manufacturers) direct labor and production overhead. Revenue minus COGS is your gross profit, so getting COGS right is the foundation of every margin decision you make. It excludes operating expenses like marketing, rent, and admin salaries.

The COGS Formula

COGS = Beginning Inventory + Purchases − Ending Inventory

The formula is simple; the subtlety is in valuing ending inventory. That's where the cost flow method matters — the same period of sales produces different COGS under each:

Worked Example: COGS Under Each Method

Buy 100 units @ $10, then 200 @ $12, then 150 @ $14 ($5,500 for 450 units). Sell 320 units:

FIFO COGS

$3,680

100×$10 + 200×$12 + 20×$14

LIFO COGS

$4,140

150×$14 + 170×$12

Weighted Avg COGS

$3,910

320 units × $12.22 average

With rising costs, LIFO reports $460 more COGS than FIFO on identical sales — lower gross profit, lower taxable income. That trade-off is the heart of the FIFO vs LIFO decision, and it's why inventory valuation is a tax strategy, not just bookkeeping.

What Counts in COGS (and What Doesn't)

Included

Purchase price of goods for resale
Raw materials and components
Inbound freight and duties
Direct production labor
Factory/production overhead

Excluded

Marketing and advertising
Rent and utilities (non-production)
Admin and sales salaries
Outbound shipping to customers
Research and development

For a deeper dive into optimizing this number, read our Small Business Guide to COGS.

Frequently Asked Questions

How do you calculate COGS?

Beginning inventory + purchases − ending inventory. If you don't know ending inventory yet, use the method-accurate calculator above: it allocates your purchase costs to units sold under FIFO, LIFO, or Weighted Average and gives you both numbers at once.

Does the valuation method really change COGS?

Yes — in the example above the spread between FIFO and LIFO is $460 on just $5,500 of purchases (over 8%). Scaled to real revenue, method choice routinely shifts reported profit by five to six figures a year.

How do I calculate COGS in Excel?

The basic identity is one formula. FIFO layer allocation is the hard part in a spreadsheet — grab our free FIFO Excel template with the allocation formulas already built.

Is COGS the same as cost of sales?

Mostly. "Cost of sales" is the broader term service businesses use; product businesses typically say COGS. On financial statements they occupy the same line: direct costs of what was sold.

Ending Inventory Calculator

Value your closing stock under any method.

Inventory Turnover Calculator

COGS ÷ average inventory — with benchmarks.

FIFO Calculator

The full first-in, first-out method guide.

COGS From Your Real Transactions

Upload a CSV of your purchases and sales — get COGS, ending inventory, and per-unit costs under every method, exportable and saved.

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