Create a Product Cost (COGS) Formula | A Step-by-Step Guide

Calculating COGS at the end of each month can be a serious headache, especially when the information you need is all over the place. But what if you had a simple, concise, accurate product cost formula catalog to make it easier?
In this video, we'll talk step-by-step how to break down COGS and gather all the information you need in one easy place.
We'll also discuss the 3 reasons why this is so important for your business:
👉 Visibility
👉 Convenience
👉 Foundation
We'll also discuss which costs to include in your product cost formula.
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🔥 Download the Inventory and COGS Template to jumpstart this process -
ledgergurus.com/portfolio/inv...
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⬇️ MORE STUFF YOU SHOULD CHECK OUT ⬇️
** INVENTORY & COGS PLAYLIST: **
• Inventory & COGS
** Understanding Inventory & COGS for Amazon Sellers **
• Understanding Inventor...
** Calculating ecommerce inventory and COGS using product cost catalogs **
• Calculating ecommerce ...
** Recording Cost of Goods Sold (COGS) | Cash vs. accrual methods **
• Recording Cost of Good...
** How to Create a Journal Entry for Cost of Goods Sold in QuickBooks Online **
• How to Create a Journa...
** If you're interested in our ecommerce accounting services, click here to contact us: **
ledgergurus.com/ecommerce-acc...
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[@angelastrickland2472]

Hi. How can I use this for products that I make and sale? Do you have any videos on inventory and COGS for manufacturing products for sale?

[@LedgerGurus]

We don't have any specifically geared towards manufacturing at this time, but you can extrapolate from other videos. Here's our entire Inventory and COGS playlist: kzbin.info/aero/PL8z_d3aPaZE-n25ANPG09V08UwrpiDB8E

[@scratchmasterp]

Hi Brittany! Thanks for the video! Very helpful. We're Amazon FBA sellers, and there is one thing that we can't find any information on KZbin, so I wanted to ask you about this specific aspect. I am trying to get an accurate overview of my product costs on my P/L statement using Link My Books. Throughout the year my product cost changes based on several factors including order quantity, materials, labor, etc. Is there a way to track this so that my ever-changing product costs are accurately shown on my P/L statement? For example, if I purchase 1000 units at $4.5/unit and 2000 units at $4.2/unit, is there a way to automatically track when to change the product costs to the new figure based on the number of units sold over time? We currently input one "Product Cost" into Link My Books, i.e. $4.50 if we purchase 1000 units, but how do we account for the 2000 units bought at $4.20? We can't constantly update the product cost daily and track how many were purchased at $4.50 from our old stock, and how many were purchased at $4.20 from our new stock -- obviously, that would be a nightmare to recalculate this average daily across all SKUs! So we're trying to ascertain how to accurately account for this on an ongoing basis when the average Product Cost changes daily or weekly based on the number of remaining stock purchased at different prices (i.e. $4.20 or $4.50). Thanks so much!

[@LedgerGurus]

To accurately reflect changing product costs in your P/L statement, consider using inventory valuation methods like First-In, First-Out (FIFO) or Weighted Average Cost (WAC). FIFO assumes the first items purchased are the first sold, ideal for tracking costs in chronological order. WAC calculates an average cost for all units, simplifying accounting by applying a consistent cost figure across all sales. If Link My Books doesn't support dynamic cost tracking, you can either make manual adjustments or explore inventory management system integration.

[@scratchmasterp]

Thanks Brittany! What happens to the extra 5-10% that may occur as a result of not having a perfect "average cost" at all times? Since old inventory will shift, and new, cheaper inventory will take its place. So, is there a kind of leeway/acceptable difference between the ACTUAL cost of goods (i.e. the inventory purchased), and the reported COGS? I've heard that 'actual cost variances' "wash over" this difference. Is that correct? And if so, what is an acceptable percentage? Is the sole purpose of the Cost of Goods Sold account to essentially give us, as business managers, a clearer depiction of ongoing Gross Profit on the P/L sheet? Does it make no difference overall to the actual margins at the end of the year since they are based on the "actual" cost (i.e. the invoices for the costs of goods sold)?@@LedgerGurus