Financial modelling terms explained

Cost of Goods Sold

Cost of goods sold (COGS) is the direct costs of producing and delivering the products a business sells. COGS is a very important metric that is used to evaluate and compare the profitability of different businesses.

What Is Cost of Goods Sold?

Cost of goods sold is the total cost of the products that a company has sold in a given period of time. This includes the cost of the materials that were used to produce the products, as well as the cost of the labor that was involved in making them. It also includes any shipping or handling costs that were incurred in getting the products to their final destination.

How Do You Calculate Cost of Goods Sold?

The cost of goods sold (COGS) is the amount of money that a company spends to produce or purchase the goods that it sells. To calculate COGS, you need to know the cost of the goods that were sold during the period and the number of units that were sold.

The cost of goods sold can be divided into two categories: direct costs and indirect costs. Direct costs are those costs that are specific to the production of a particular product. Indirect costs are those costs that are not specific to a particular product, but rather are incurred in the overall production process.

The cost of goods sold includes the cost of the raw materials that are used in production, as well as the cost of labor and other production costs. It also includes the cost of shipping and handling, and any other costs that are associated with the production and sale of the product.

To calculate the cost of goods sold, you need to know the following information:

- The cost of the raw materials that were used in production

- The cost of labor and other production costs

- The cost of shipping and handling

- Any other costs that are associated with the production and sale of the product

Once you have this information, you can calculate the cost of goods sold as follows:

COGS = (Cost of Raw Materials + Labor Costs + Production Costs + Shipping Costs + Other Costs) ÷ Number of Units Sold

What Is a Cost of Goods Sold Formula?

A cost of goods sold (COGS) formula is used to calculate the total cost of the goods that were sold during a specific period of time. This formula takes into account the cost of the materials that were used to produce the goods, as well as the cost of the labor that was involved in the production process. The cost of goods sold formula can be used to calculate the cost of goods sold for a single product, or for a product line as a whole.

What Is a Cost of Goods Sold (COGS) Margin?

A company's cost of goods sold (COGS) margin measures how much profit the company makes on each dollar of revenue generated from the sale of goods. The COGS margin is calculated by dividing the company's COGS by its revenue from goods sold. A higher COGS margin indicates that the company is more profitable on its sales of goods.

A company's COGS may include the cost of the goods themselves, as well as the cost of shipping, handling, and any other associated costs. The COGS margin can be used to measure the efficiency of a company's operations and to compare the profitability of different divisions or products.

How Do You Calculate Cost of Goods Sold Margin?

The cost of goods sold margin measures the percentage of each dollar of revenue that is left over after the cost of goods sold is paid. This margin can be used to measure the efficiency of a company's operations and to compare it to others in the same industry. The calculation for cost of goods sold margin is:

(Revenue - Cost of Goods Sold) / Revenue

This calculation will give you the percentage of each dollar of revenue that is left over to cover other expenses, such as administrative and marketing costs. You can use this calculation to compare the efficiency of companies in the same industry or to measure the progress of your own company over time.

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