Cost of Sales Calculator 2026
Calculate COGS & Gross Profit Margin
Essential accounting tool for business profitability analysis
What is Cost of Sales (COGS)?
📦 COGS Explained
Cost of Sales (also called Cost of Goods Sold or COGS) represents the direct costs attributable to the production of goods sold by a company. This includes the cost of materials, direct labor, and manufacturing overhead.
Formula: COGS = Beginning Inventory + Purchases + Direct Costs − Ending Inventory
📊 Cost of Sales Results
📊 Revenue Breakdown
📋 COGS Calculation Breakdown
| Component | Amount |
|---|
Cost of Sales Formulas
Basic COGS Formula
Cost of Goods Available for Sale
Gross Profit
Gross Profit Margin
Markup Percentage
- Determine Beginning Inventory: Value of inventory at the start of the accounting period.
- Add Purchases: Total cost of goods purchased during the period, including freight-in.
- Add Direct Costs: Include direct labor and manufacturing overhead (for manufacturers).
- Subtract Ending Inventory: Value of unsold inventory at end of period.
- Calculate Gross Profit: Subtract COGS from Net Sales to get gross profit.
Worked Example
📝 Example: Retail Store COGS
Data: Beginning Inventory: $50,000 | Purchases: $100,000 | Freight: $5,000 | Ending Inventory: $40,000 | Revenue: $200,000
| Beginning Inventory | $50,000 |
| + Purchases | $100,000 |
| + Freight-In | $5,000 |
| = Goods Available for Sale | $155,000 |
| − Ending Inventory | $40,000 |
| = Cost of Sales (COGS) | $115,000 |
| Net Revenue | $200,000 |
| = Gross Profit | $85,000 |
| Gross Margin | 42.5% |
Gross Margin Benchmarks by Industry
| Industry | Typical Margin | COGS Range | Notes |
|---|---|---|---|
| Grocery/Supermarket | 25-35% | 65-75% | Low margins, high volume |
| Clothing Retail | 45-65% | 35-55% | Higher markup on apparel |
| Electronics | 20-35% | 65-80% | Competitive pricing pressure |
| Restaurants | 60-70% | 30-40% | Food cost typically 28-35% |
| Manufacturing | 25-40% | 60-75% | Varies by product type |
| Software/SaaS | 70-90% | 10-30% | Minimal direct costs |
| Jewelry | 45-65% | 35-55% | High markup typical |
| Auto Dealers | 10-15% | 85-90% | Very thin margins |
COGS vs Operating Expenses
| COGS (Included) | Operating Expenses (Excluded) |
|---|---|
| Raw materials | Marketing & advertising |
| Direct labor (production workers) | Office salaries |
| Manufacturing overhead | Rent (non-production) |
| Freight-in | Utilities (non-production) |
| Factory rent & utilities | Administrative costs |
| Production equipment depreciation | Sales commissions |
Official Resources
Frequently Asked Questions
COGS = Beginning Inventory + Purchases + Direct Costs − Ending Inventory. This calculates the direct costs of goods sold during a period.
COGS includes only direct costs of producing/acquiring goods (materials, direct labor, freight-in). Operating expenses include indirect costs (marketing, admin, rent) not directly tied to production.
Gross Margin = (Revenue − COGS) ÷ Revenue × 100%. Example: ($200,000 − $115,000) ÷ $200,000 = 42.5%.
It varies by industry. Retail: 25-50%. Manufacturing: 25-40%. Software: 70-90%. Compare to industry benchmarks for meaningful analysis.
Service businesses have minimal or no COGS since they don't sell physical goods. They may have "Cost of Services" for direct labor and materials used in service delivery.
FIFO (First-In, First-Out): Older costs first. LIFO (Last-In, First-Out): Newer costs first. Weighted Average: Average cost. Each method produces different COGS in changing price environments.
Freight-in (shipping costs to receive inventory) is included in COGS. Freight-out (shipping to customers) is typically a selling expense, not COGS.
COGS is deductible from revenue to calculate gross profit. Higher COGS = lower taxable income. Accurate COGS calculation is important for tax purposes.
Markup = (Selling Price − Cost) ÷ Cost. Margin = (Selling Price − Cost) ÷ Selling Price. A 50% markup = 33% margin. A 100% markup = 50% margin.
Typically monthly or quarterly for management purposes. Required annually for financial statements and tax returns. More frequent analysis helps identify trends and issues.
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Last Updated: January 2026