For the management Cost of Goods Sold (COGS) Formula is very important because by using this formula management realize how well purchasing and payroll cost are being controlled.
For the calculation of the gross margin investors and creditors also use the COGS formula and analyze what percentage of revenue has by the company to cover its operating expenses.
Cost of Goods Sold (COGS) Formula can be calculated by the sum of purchases for the period and the beginning inventory and subtract the ending inventory for the period from that sum.
Cost of Goods Sold = Beginning Inventory + purchases – Ending Inventory
Here you can also learn about the definition of Cost of Good Sold.
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