Cost of Goods Sold Template
March 19, 2024
Download our COGS (Cost of Goods Sold) template and learn how to effectively track and analyze your company’s direct costs associated with the production of goods sold. The template will help you understand the impact of inventory management methods like LIFO (Last In, First Out) and FIFO (First In, First Out) on your COGS and inventory valuation. These methods can significantly affect your COGS and, consequently, your gross profit, especially in an inflationary environment.
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Key Items in the Excel Template Calculation
Transaction Type: The business activity that results in an exchange of value. Here it includes purchases and sales of inventory.
Units: The quantity of the inventory items purchased or sold.
Value per unit: The price per unit of the inventory item.
Cost: The cost of each transaction, calculated as units multiplied by value per unit.
Total Cost: The sum of costs from the purchase transactions.
Total Revenue: The total income from the sales transactions.
Ending Inventory: This is the value of inventory remaining at the end of the period. It is calculated differently under LIFO and FIFO methods.
LIFO (Last In, First Out): This is an inventory valuation method where the last items purchased are assumed to be the first ones sold. An example is a pile of screws. The last screws added to the top of the pile will be the first to be sold.
FIFO (First In, First Out): This is an inventory valuation method where the first items purchased are assumed to be the first ones sold. Perishable food items such as bread are a good example.
COGS (Cost of Goods Sold): This is the total cost of all inventory sold during a specific period. It’s calculated differently under LIFO and FIFO methods.
Gross Profit: This is calculated as total revenue less COGS. It represents the profit a company makes after deducting the costs associated with making and selling its products.
Inflationary Environment: This is a situation where the prices of goods and services are rising over time. In such an environment, LIFO results in a lower inventory valuation and higher COGS compared to FIFO. Consequently, gross profit is lower under LIFO than FIFO. This is because LIFO assumes that the last items purchased (which cost more due to inflation) are the first ones to be sold. The template shows an example of this.