Calculate COGS & Gross Profit
COGS & Gross Margin by Inventory Levels ($600K Revenue)
| Beginning Inv. | Purchases | Ending Inv. | COGS | Gross Profit | Gross Margin |
|---|
Lower COGS = higher margin.
COGS Calculator 2025: Cost of Goods Sold — Master Inventory & Profitability
Cost of Goods Sold (COGS) is the direct cost of producing or purchasing the goods you sell. It’s the foundation of gross profit and gross margin. Our COGS calculator instantly computes COGS, gross profit, and margin using beginning inventory, purchases, and ending inventory.
In 2025, with supply chain volatility and inflation, accurate COGS tracking is essential for pricing, taxes, and profitability.
COGS Formula
COGS = Beginning Inventory + Purchases – Ending Inventory
Gross Profit = Revenue – COGS
Gross Margin = (Gross Profit ÷ Revenue) × 100
Why COGS Matters in 2025
Directly impacts P&L, tax deductions, and gross margin. Misstated COGS can trigger IRS audits.
How to Use the Calculator
- Enter beginning inventory (from last period)
- Input purchases (invoices, freight-in)
- Add ending inventory (physical count)
- Include revenue
- Click “Calculate” — see COGS, profit, margin + rating
Real-World Examples
Example 1: E-commerce Retail
Beginning: $80K
Purchases: $420K
Ending: $100K
Revenue: $800K
COGS: $400K | Gross Profit: $400K | Margin: 50%
Example 2: Coffee Shop
Beginning: $5K
Purchases: $120K
Ending: $8K
Revenue: $300K
COGS: $117K | Gross Profit: $183K | Margin: 61%
Example 3: Manufacturer
Beginning: $200K
Purchases: $1.2M
Ending: $250K
Revenue: $2.5M
COGS: $1.15M | Gross Profit: $1.35M | Margin: 54%
What’s Included in COGS?
| Include | Exclude |
|---|---|
| Materials | Rent |
| Direct Labor | Marketing |
| Freight-In | Admin Salaries |
| Factory Overhead | Office Supplies |
2025 COGS Challenges
- Inflation: Rising material costs
- Supply Chain: Delays increase holding
- Tariffs: Import duties in COGS
- LIFO vs FIFO: Tax strategy
Inventory Valuation Methods
- FIFO: First in, first out
- LIFO: Last in, first out (tax benefit in inflation)
- Weighted Average: Most common
How to Reduce COGS
- Negotiate Suppliers: Bulk discounts
- Reduce Waste: Lean manufacturing
- Just-in-Time: Lower ending inventory
- Drop Shipping: No inventory held
- Private Label: Cut middlemen
COGS vs Operating Expenses
COGS = direct product costs. OpEx = overhead (rent, marketing).
Tax Deductions
COGS is deductible. Reduces taxable income. Use depreciation for equipment.
Integrate with Other Tools
- Gross Margin: COGS ÷ Revenue
- Inventory Turnover: COGS ÷ Avg Inventory
- Profit Margin: After all costs
Common COGS Mistakes
- Including OpEx in COGS
- Forgetting freight-in
- Using book vs physical inventory
- Not adjusting for returns
COGS and Pricing
Markup = (Price – COGS) ÷ COGS
Margin = (Price – COGS) ÷ Price
2025 Trends
- AI Forecasting: Predict purchases
- Nearshoring: Lower freight
- Sustainable Sourcing: Higher COGS, better brand
- Automation: Reduce labor in COGS
Conclusion: COGS Is Your Profit Lever
The COGS calculator is your inventory and pricing compass. Track it weekly. Optimize it monthly. Grow margins quarterly.
In 2025, low-COGS businesses dominate.
Not accounting advice. Consult a CPA.
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