Calculate Cost of Goods Sold using the standard accounting inventory formula.
Calculate your cost of goods sold (COGS) using opening inventory, purchases, and closing inventory values.
COGS is the direct cost of producing or purchasing the goods you sell. It includes raw materials, direct labour, and manufacturing costs directly tied to production. COGS does not include overhead like rent, salaries of non-production staff, or marketing.
Revenue minus COGS equals gross profit, the first level of profit analysis.
COGS equals opening inventory plus purchases during the period minus closing inventory. For example: opening inventory 1 lakh, purchases 50,000, closing inventory 30,000, COGS equals 1,20,000.
This formula accounts for the fact that not all purchases are sold in the same period.
COGS is a required item on your P&L statement. It directly affects gross profit and therefore your tax liability. Understating COGS overstates profit and increases tax. Overstating COGS understates profit.
Accurate COGS calculation ensures correct profit reporting and valid tax deductions.
Service businesses may not have traditional inventory, but they have direct service costs: contractor payments, materials used, and direct labour. These are equivalent to COGS for service-based P&L analysis.
Calculate your direct service costs to find your service gross margin.
Your selling price must exceed your COGS to make a gross profit. Use the selling price calculator on Tez Invoice to set prices that deliver your target gross margin above COGS.
Track COGS carefully to keep your gross margin at target levels as supplier prices change.
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Common questions about COGS Calculator: Calculate Cost of Goods Sold for Your Business on Tez Invoice.
Cost of Goods Sold is the direct cost of producing or buying the goods sold in a period.
Opening inventory plus purchases minus closing inventory equals COGS.
Yes. Free with no sign up.
No. COGS is the direct production cost. Operating expenses are overhead like rent, salaries of non-production staff, and marketing.
COGS is deducted from revenue to get gross profit. Higher COGS means lower gross profit and lower taxable income.
Yes. Free with no sign up and no usage limits.
Yes. Fully responsive.
No. In-browser processing only.
Yes. Designed for small businesses and freelancers.
Use the free Invoice Generator on Tez Invoice.