What is the Cost of Goods Sold Formula?

by Fahad
(KSA)

What is the cost of goods sold formula?


A: The cost of goods sold formula (also known as the cost of sales formula or equation) is:

cost of goods sold formula

Or to spell it out here:

Cost of Goods Sold = Opening Inventories + Purchases - Closing Inventories

The Purchases in the above formula actually has various sub-components, which they love to test you on in accounting tests and exams. Purchases are made up of the following:
  • Actual purchase cost,

  • Carriage (transport costs),

  • Import duties,

  • Purchases returns.

The full total of purchases (which would go in the cost of goods sold formula) would thus be:

Total Purchases = Purchases (purchase costs) + Carriage + Import duties - Purchases Returns

See the full lesson on Sales, Cost of Goods Sold and Gross Profit for a full explanation of the cost of sales formula and gross profit.

Scroll down further below for more questions and answers on the cost of goods sold formula, as well as related tutorials.

Best,
Michael Celender
Founder of Accounting Basics for Students


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Comments for What is the Cost of Goods Sold Formula?

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cost of sales
by: Anonymous

Is freight included in the computation of cost of sales?
ex:
Beg.Inventory
Purchases
Freight in
Transportation to consignees
Freight out
Ending inventory

what is the formula to get the cost of sales?

See above for the cost of sales formula.

Yes, Freight In (could also be called Carriage In) would be part of the calculation of Total Purchases.

All costs to get the products to you and in proper condition would be part of Total Purchases.

Total purchases, in turn, is one of the 3 main components of the cost of goods sold formula. See full explanation above.
How do u calculate cost of sales
by: Anonymous

How do you calculate the cost of sales if the information is as follows:

Opening inventory
Sales
Purchase returns
Carriage on purchases
Carriage on sales
Purchases
CLOSING INVENTORY

Cost of Sales = Opening Inventory + Total Purchases - Closing Inventory

Total Purchases = Purchases + Carriage on purchases - Purchase returns

Therefore:
Cost of Sales = Opening Inventory + (Purchases + Carriage on purchases - Purchase returns) - Closing Inventory

Hope that helps!

- Michael Celender
Confused
by: Anonymous

How to calculate Cost of Sales if:
Sales is 900 and marked up by 100% on the cost price?

Cost + Mark-up = Sales

Let Cost = y

y + (100/100 x y) = 900
y + (1y) = 900
2y = 900
y = 450

Cost = 450
MRS
by: Anonymous

Budgeted Sales are as follows:

Month
July 105,000
August 9,200
September 130,000
October 150,000

Sales expect to occur evenly during each month.
Management policy is to hold sufficient inventory at month end to meet sales demand in the next half month.
Creditors are paid in the month following the purchase.

Calculate cost of sales.

I'm not going to do all the calculations here, but the key in this question is to calculate closing inventory each month. To do so you take the budgeted sales in the following month and x 50% (half the month). Then you get each of the closing inventory amounts - and automatically these are the following month's opening inventory. Then just apply the cost of goods sold formula as above but just with opening and closing inventory and $0 purchases each month.
Cost of Sales
by: Anonymous

How to compute Cost of Sales if my sales is 141,000 and Purchases 55,000?

You need also opening and closing inventory figures...
help
by: Anonymous

Levin Furniture buys a living room set with a $4,000 list price and a 55% trade discount. Freight (Freight on Board shipping point) of $50 is not part of the list price. What is the delivered price (including freight) of the living room set, assuming a cash discount of 2/10, n/30, ROG? The invoice had an April 8 date. Levin received the goods on April 19 and paid the invoice on April 25.
Formula for Cost of Sales
by: Anonymous

To calculate the cost of sales :
Sales x 100/100 + markup %
eg. 500 x 100/160
500 : sales
160 : 100 + mark up %. markup % is 60%
Cost of Sales & Mark-Up Calculation
by: Colin

I was given the sale amount and was asked to calculate the cost of sales if all goods were marked up by 60%. Sale amount was 24,400....

Mark-up is the increase based on cost of goods so answer is:

24,400 X 100/160 = 15,250

Sales is 160 here as cost + mark-up = sales (100 + 60 = 160)

Cost is 100 as mark-up is based on cost so cost is the subject of our equation, meaning the 100% portion of the equation. Or to put it another way, the 60% mark-up is based on 100% cost - mark-up is 60/100 of the cost.

Best,
Michael Celender
How to calculate the cost of sale
by: Anonymous

If you were given just cost of sales, how do we calculate the cost of sale?

Sounds like no calculation is needed, just use the cost of sales figure they gave you...
Cost of Sales Formula
by: Anonymous

Cost of Sales = Opening Inventory + Purchases -Closing Inventory
Cost of Sales and Gross Profit Question
by: Anonymous

Please help with calculating cost of sales and gross profit:

Inventory (1 March 2013) - 100,000
sales - 150,000
purchases - 80,000
sales returns - 1,200
purchases returns - 2000
freight charges on purchases - 650
freight charges on sales - 1700
settlement discount granted - 350
closing inventory - 40,000

What is the cost of sales figure and gross profit?

Cost of Sales = Opening Inventory + Total Purchases - Closing Inventory

Total Purchases = Purchases + Carriage on purchases - Purchase returns

Therefore:
Cost of Sales = Opening Inventory + (Purchases + Carriage on purchases - Purchase returns) - Closing Inventory

= 100,000 + (80,000 + 650 - 2000) - 40,000
= 138,650

Sales = Sales - Sales Returns

(Freight on sales not included in this calculation or in the calculation of gross profit - not counted as a selling expense but just as a regular expense. Same thing with settlement discount granted - regular expense - separate from gross profit calc.)

Sales = 150,000 - 1,200
= 148,800

Gross Profit = Sales - Cost of Sales
= 148,800 - 138,650
= 10,150

Hope that helps!

- Michael Celender
Cost of Goods Sold Formula Question
by: Anonymous

Hi I want to ask about the following:

Inventory (1 March20.2) - 170000
sales - 550000
purchases - 350000
sales returns - 1200
purchases returns - 2000
closing inventory - 160500

What is the cost of sales figure?

Cost of Sales = Opening Inventory + (Purchases + Carriage on purchases - Purchase returns) - Closing Inventory

= 170,000 + (350,000 + 0 - 2,000) - 160,500
= 357,500

Hope that helps!

- Michael
answer
by: waqas

CGS = opening inv + purchases - closing inv
Cost of sales formula
by: Patrick

Purchases X
Add closing stock(inventory) X

X
Less opening inventory(stock) (X)

Cost of sales X

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