As a businessman you must know about the cost of goods sold or commonly abbreviated as COGS. In English it is known as COGS (Cost Of Good Sold). Without knowing the HPP, business people only sell products at ‘just’ prices, aka using feeling. This will result in the business not getting a profit or even losing. This article will teach you how to easily calculate the cost of goods sold so that you are free to determine the selling price and can determine the discount for customers because you know the basic COGS.
1. Definition of COGS
COGS is the total of all costs incurred directly to get goods or services sold. The HPP calculation is done with the aim of knowing the amount of production costs that will be incurred when producing goods or services. In general, the calculation of Cost of Goods Sold (COGS) consists of raw material costs, labor costs and overhead costs.
2. How to Calculate COGS?
The following is how to easily calculate the Cost of Goods Sold (COGS):
CV Ayo Kerja on 20 June 2020 has the following data:
- Goods inventory of IDR 20 million
- Purchases made of Rp. 60 million.
- Delivery fee of Rp. 2 million
- A purchase return of Rp. 6 million.
- Purchase discount of IDR 1 million.
- Final stock of IDR 20 million.
To calculate the COGS are as follows:
Net Purchases = (Purchase + Shipping Cost) – (Purchase Returns + Purchase Discounts)
Net Purchases = (60,000,000 + 2,000,000) – (6,000,000 + 1,000,000)
Net Purchases = (62,000,000) – (7,000,000)
Net Purchases = 55,000,000
Ready-to-Sale Goods = Beginning Inventory + Net Purchases
Ready For Sale Items = 20,000,000 + 55,000,000
Ready-for-sale goods = 75,000,000
HPP = Goods Ready to Sell – Final Stock
COGS = 75,000,000 – 20,000,000
COGS = 55,000,000
3. How to Determine The Sell Price?
The selling price is the price given to the customer. Here’s how to calculate it:
Selling Price = Production Costs + Non-Production Costs (Miscellaneous) + Desired Profit
Production cost is Rp. 32,000, –
Non-Production Costs are IDR 6,000
The desired profit is 8,000, –
Selling price = 32,000 + 6,000 + 8,000
Selling price = 46,000
So in determining the selling price you have to determine the desired profit, but you must also pay attention to the selling price of similar products in the market. If your selling price is too high, the product will not be easy to sell.
Currently there are many POS software that provide facilities for calculating COGS so you don’t need to calculate manually. It is enough to enter the data at the beginning correctly. There are several POS software such as iReap Pro from PT STEM, Mokka, Pawon, and many others.
Hopefully this article has provided you with the correct insight that Cost of Goods Sold (COGS) is not the same as Selling Price.
Djoko Kurniawan | Business Consultant | The movers of Indonesian MSMEs