The cost of goods sold (COGS) ratio measures what percentage of a company’s revenue goes toward producing its goods. It’s a key metric for understanding profit and managing costs.

Use work-in-process valuations for unfinished goods, and plug those into the same formula: Beginning Inventory + Purchases – Ending Inventory.

No. Shipping costs to customers are selling expenses, not part of COGS. Only inbound freight used to acquire inventory qualifies.

In the U.S., LIFO is allowed under GAAP, though FIFO and weighted average are more common. Stick with one unless you have a solid reason to switch.

Not exactly. Service-based businesses track the “cost of services” like wages and subcontractor fees. This calculator still works—you’d enter direct labor and service inputs.

At least quarterly; or monthly if you deal with inventory regularly. It helps you catch margin slippage early.

Then your COGS calculation will also be off. Use regular physical counts or trusted inventory software for accuracy.

Yes, indirectly. If you’re spending heavily on inventory, it can tie up working capital. Keeping an eye on COGS helps manage cash.

No. Operating (or SG&A) expenses come after gross profit and include admin, rent, marketing, and other indirect costs.

You can renegotiate supplier contracts, improve production efficiency, or find lower-cost alternatives that don’t sacrifice quality.

It’s listed directly under revenue. Subtract it from revenue to get gross profit.