COGS

(noun)

COGS (cost of goods sold) is the inventory costs of those goods a business has sold during a particular period.

Related Terms

Examples of COGS in the following topics:

  • Cost of Goods Sold

    • In short, COGS refers to the cost of producing the good from start to finish.
    • A few key record keeping concepts to keep in mind when approaching COGS:
    • After selling the first 50 phones, the COGS under FIFO would be $10,000 (50 x $200).
    • So, to use the above example, the sale of the first 50 phones would have a recorded COGS of $15,000 (50 x $300).
    • Average Cost - Under this COGS method, the overall per unit production cost is averaged across the entire recording period.

  • Inputs to COGS

    • COGS is difficult to forecast due to the sheer amount of expenses included and differing methods of estimating each.
    • Cost of goods sold (COGS) refer to the inventory costs of the goods a business has sold during a particular period.

  • Calculating the Cash Flow Cycle

    • To estimate its RATE, we note that Accounts Receivable grows only when revenue is accrued; and Inventory shrinks and Accounts Payable grows by an amount equal to the COGS expense (in the long run, since COGS actually accrues sometime after the inventory delivery, when the customers acquire it).
    • Inventory conversion period: Rate = COGS, since this is the item that (eventually) shrinks inventory.
    • Payables conversion period: Rate = [inventory increase + COGS], since these are the items for the period that can increase "trade accounts payables" (i.e., the ones that grew its inventory).

  • Uses of the Income Statement

    • Operating income subtracts the cost of goods sold (COGS) alongside selling, general, and administrative expenses (SG&A), leaving the overall profit before taxes and interest on financial debt.
    • This essentially demonstrates the added value of each unit of sales, as it focuses exclusively on the impact of the cost of goods sold (COGS).
    • COGS represents the costs incurred (directly) from materials, labor, and production of each individual unit.

  • Cost Flow Assumptions

    • FIFO assigns first costs incurred to COGS (cost of goods sold) on the income statement.
    • Assigns first costs incurred to COGS (cost of goods sold) on the income statement
    • LIFO and weighted average cost flow assumptions may yield different end inventories and COGS in a perpetual inventory system than in a periodic inventory system due to the timing of the calculations.

  • Profit Margin

    • Recall that gross profit is simply the revenue minus the cost of goods sold (COGS).
    • The difference between the two is that the gross profit margin shows the relationship between revenue and COGS, while the net profit margin shows the percentage of the money spent by customers that is turned into profit.

  • Inventory Techniques

    • It takes the weighted average of all units available for sale during the accounting period and then uses that average cost to determine the value of COGS and ending inventory.

  • Lower of Cost or Market

    • Any loss resulting from the decline in the value of inventory is charged to cost of goods sold (COGS) if non-material, or loss on the reduction of inventory to LCM if material.

  • Dollar-Value LIFO

    • However, because it does occur and thus costs change over time, the dollar-value method presents data that show an increased cost of goods sold (COGS) when prices are rising, and a lower net income.

  • Inventory Turnover Ratio

    • The equation forinventory turnover is the cost of goods sold (COGS) divided by the average inventory.