This Cost of Goods Sold Excel Template is a useful tool to help you calculate COGS through the three different accounting methods, LIFO, FIFO and weighted average.
What is Cost of Goods Sold?Cost of goods sold (COGS) is the direct cost incurred during the production of goods or services. It includes direct labor cost, material cost, manufacturing overhead, and other expenses directly proportional to revenue. This implies that when revenue goes up, more resources are employed to produce the goods or service and thus higher cost incurred. COGS is generally the second line item on the income statement, following the sales revenue. It is deducted from revenue to arrive at the gross profit, which the amount a company earns after accounting for all the direct costs associated with the sales.
Four Main Types of COGS ClassificationsThere are four types of COGS classifications widely used by companies:
- First-in-first-out (FIFO): Under FIFO, COGS is calculated using the cost of earlier materials purchased.
- Last-in-first-out (LIFO): Under LIFO, COGS is determined by the cost of the latest materials purchased.
- Weighted average: The total cost of goods available for sale is divided by units available sale, then multiplied by the actual number of goods sold to arrive at the COGS.
- Specific identification: This method is only used when companies have specifically identifiable inventory, such as car manufacturers and real estate developers.
Learn More About COGSRead CFI's guide on COGS to have a better grasp of the concept and look at example calculations to reinforce the knowledge!