Other traditional overhead costs include employee salaries in marketing or sales, utility bills, warehousing costs and more. eBay or Amazon), and online advertising (e.g., Facebook or Google).įor more detail on additional costs that affect profitability, see our guides to shipping costs, payment processing fees and customer acquisition costs. Shopify Payments, PayPal or Stripe), marketplace transaction fees (e.g. Your profitability depends on many other costs.Įcommerce brands have multiple other costs not directly related to inventory: shipping to customers, order fulfillment, payment processing fees (e.g. COGS measures the direct acquisition cost of the items that you sell. It also includes the software needed to acquire your products.ĬOGS is included as a separate line on your balance sheet, but it’s not the only line. ![]() this doesn’t include shipping costs to your customers). Overhead Costs: These include utilities and transportation costs directly related to your products up to the point when they enter your inventory (i.e.This doesn’t account for employees working on other tasks, like marketing or sales. It includes everything from warehouse costs to what the manufacturer pays employees. Cost of Labor: This accounts for what you pay employees who work directly on creating your products (even if you purchase them from a manufacturer).Cost of Materials: The most direct cost in COGS, this includes the parts used to make your products (or source them from the manufacturer), raw materials, and items purchased for resale. ![]() Together, these two numbers give you an accurate picture of where you stand with inventory and COGS and, more importantly, where you stand on gross margin.”īut what costs actually go into calculating COGS? Here are some of the main costs associated with cost of goods: Then, your balance sheet should also show an inventory balance reflective of all the product you have remaining. “At the end of each month you should have revenue and COGS on your profit and loss statement reflective of the margin you enjoyed on those products at the time of their sale. What Numbers Make Up COGS?Īccounting firm Ledger Gurus give a fantastic explanation for the form and function of COGS. Since LIFO reflects current costs regardless of current inventory, LIFO results in a higher reported COGS.įor more detail on these four models for COGS, see our past posts on calculating costs of goods sold. Last-In, First-Out (LIFO): This model assumes you sell your newest inventory first.FIFO will most closely match costs with your ending inventory on your balance sheet. ![]()
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