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Accounting Cost of Goods Sold (Annual) Calculator

Calculate annual cost of goods sold using opening inventory, inventory purchases, direct costs and closing inventory.

Your Details

Overview

Use this annual cost of goods sold calculator to estimate the cost of inventory sold over an accounting year. Enter sales revenue, opening inventory, inventory purchases, other direct costs, and closing inventory to see your estimated COGS, gross profit, and gross margin.

How it works

The calculator starts with opening inventory and adds inventory purchases and other direct costs to find goods available for sale. It then subtracts closing inventory, because those goods were not sold during the year. The result is annual cost of goods sold. Gross profit is sales revenue less COGS, and gross margin expresses gross profit as a percentage of revenue.

How to use this calculator

  1. 1Enter your total sales revenue for the accounting year.
  2. 2Add the value of inventory on hand at the start of the year.
  3. 3Enter inventory purchases made during the year.
  4. 4Include other direct costs that relate to acquiring or producing goods.
  5. 5Enter your year-end closing inventory and review the results.

Example Calculation

Annual sales revenue

$500,000

Opening inventory

$80,000

Inventory purchases

$240,000

Other direct costs

$30,000

Closing inventory

$70,000

Annual cost of goods sold

$280,000

Goods available for sale are 350,000. After deducting closing inventory of 70,000, annual COGS is 280,000. With sales revenue of 500,000, gross profit is 220,000 and gross margin is 44.0%.

Frequently asked questions

What is cost of goods sold?

Cost of goods sold, often called COGS or cost of sales, is the direct cost of inventory that was sold during an accounting period.

What is the annual COGS formula?

A common formula is opening inventory plus inventory purchases plus other direct costs, minus closing inventory.

Why is closing inventory subtracted from COGS?

Closing inventory is still on hand at the end of the year, so it has not yet been sold and should not be included in the current year's cost of goods sold.

Are wages included in cost of goods sold?

Direct labour used to make goods may be included. General administration, sales, and office wages are usually treated as operating expenses instead.

Does COGS include shipping costs?

Freight or shipping costs incurred to bring inventory in may be included as a direct inventory cost. Delivery costs to customers are often treated separately, depending on the accounting policy.

What is the difference between COGS and gross profit?

COGS is the direct cost of goods sold. Gross profit is sales revenue minus COGS, before indirect operating expenses, interest, and tax.

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Assumptions and warnings

Assumptions

  • All amounts relate to the same accounting period and use the same currency.
  • Opening and closing inventory are valued using a consistent inventory valuation method.
  • Direct costs entered are attributable to acquiring or producing goods sold.
  • The calculation excludes operating expenses, finance costs, taxes, and other indirect overheads unless included in direct costs.
  • Results are estimates based on the figures entered.

Warnings

  • This calculator provides an accounting estimate only and is not financial, tax, or professional advice.
  • Inventory valuation, returns, write-downs, and accounting policies can materially affect reported cost of goods sold.
Annual Cost of Goods Sold Calculator