![]() Ending inventory is any unsold product at the end of the financial period. To reiterate, beginning inventory is any unsold product at the start of the financial period. Take stock of beginning inventory and ending inventory.(For example, you only have one product that requires refrigeration, so refrigeration costs are directly related to that product and thus a part of its COGS.) Remember, these indirect expenses must still be tied to specific products. Check for any indirect costs that go into your products, like factory overhead and labor.Calculate the total cost of your raw materials, parts, items bought for resale, direct labor costs, transportation, storage, and/or cost of services.Choose what makes the most sense for your industry, company, and products. Determine your inventory value method (FIFO, LIFO, or average cost).Set your financial reporting period (monthly, quarterly, or yearly).(Total revenue - COGS) / Total revenue = Gross profit marginĬhecklist: Calculating cost of goods sold ![]() To get your gross profit margin, follow this formula: ![]() How do you find your gross profit margin using COGS? To get your cost of goods ratio, follow this formula: It’s helpful from a general business sense because different companies pay different prices for their products, and a percentage is more generally comparable than a dollar value. The COGS ratio (aka cost of sales ratio) tells you the percentage of sales revenue you’re using to pay for your products. You can include salaries & labor costs in COGS when it’s directly tied to the production of the good or service. General and administrative expenses not related to your products, like office supplies and other overhead costs, fall under operating expenses.
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