As a businessman, you must know how to calculate COGS and selling prices. What is the formula for the cost of goods sold? The general COGS formula adds the beginning merchandise inventory to net purchases, then subtracts it from the ending inventory.
However, this calculation will differ depending on the type of business you are running, whether a manufacturing company, trading company or retail business that sells goods in retail. For a complete explanation, see the description in this article.
Definition of COGS
Cost of Goods Sold, commonly abbreviated as COGS, is a translation from English called Cost Of Good Sold (COGS). Cost of Goods Sold (COGS) is all costs incurred directly to obtain goods or services sold.
The COGS calculation is carried out to determine the production costs you incur when producing goods or services. The Cost of Goods Sold (COGS) calculation generally consists of raw material, labor, and overhead costs.
Business people need to know the meaning of COGS and how to calculate COGS so that they use something other than feeling or setting product prices carelessly when selling products.
If you do this, it can result in a business not making a profit or even a loss. That’s why you need to understand the easy way to calculate the Cost of Goods Sold. The goal is that you are free to determine the selling price and can determine discounts for customers because you know the basic COGS.
How to calculate COGS
The following is an easy way to calculate the Cost of Goods Sold (COGS):
CV Come on Work on June 20, 2023, has the following data:
- Inventory of goods Rp. 20 million.
- Purchases made of IDR 60 million.
- Shipment fee of IDR 2 million.
- Purchase returns of IDR 6 million.
- Purchase discount of IDR 1 million.
- Final Stock IDR 20 million.
To calculate COGS, here’s how:
1. Calculating Total Net Purchases COGS
Net Purchases = (Purchases + Shipping) – (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
2. Calculate Total Goods Ready to Sell
Goods ready for sale = Beginning Inventory + Net Purchases
Goods Ready for Sale = 20,000,000 + 55,000,000
Goods Ready for Sale = 75,000,000
3. How to Calculate COGS
HPP = Goods ready to sell – Final Stock
COGS = 75,000,000 – 20,000,000
COGS = 55,000,000
Than Cost of Goods Sold = IDR 55,000,000
How to Determine the Selling Price
The selling price is the Price given to the customer.
Here’s how to calculate it:
Selling Price = Production Cost + Non-Production Cost (Others) + Desired Profit
Production Cost is Rp. 32.000,-
Non-Production Cost is Rp, 6.000,-
Desired Profit is 8,000-
So, you can calculate the selling price by adding production costs to non-production costs and the desired profit. Here’s an example:
Selling Price = 32,000 + 6,000 + 8,000
Selling Price = 46,000
So, in determining the selling price, you must determine the desired profit. But still, have to pay attention to the selling price of similar products in the market. If your selling price is too high, the product will be complex again, and the capital will be held up for a long time.
After knowing how to quickly determine the Cost of Goods Sold (HPP) and selling price, there are other, more practical ways. You can use a POS application or POS software with facilities for calculating COGS more practically.
In this way, you don’t have to calculate manually. Enter the data at the beginning correctly—several POS software, such as iReap Pro from PT. Sterling Tulus Cemerlang (STEM).
Hopefully, this article will give you the insight that the Cost of Goods Sold (HPP) is not the same as the Selling Price.
Djoko Kurniawan | Business Consultant | MSMEs in Indonesia