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What Are COGS and COGM?
COGS is the acronym for cost of goods sold and COGM is the acronym for cost of goods manufactured. Understanding the formula for calculating these is essential to determine not only pricing your products but also your net and gross profits.
Often, business owners really don’t know the formulas involved in determine COGS or COGMs and not knowing can be detrimental to your business and its financial state. Price goods too low and you won’t make a profit. If you don’t account for one element such as labor, you may set your price incorrectly and then find you’re sinking!
Here at Bright Hub, we understand that determining these formulas isn’t a favorite and is often a dilemma to most entrepreneurs, so here we’ve put together a library of articles to make you an expert at both COGS and COGM. We’ve even included some great tips and templates you can use to get started. Finally, once you’re an expert on these formulas, we’ve offered some income and expense template forms to aid you in predictions, forecasting and marketing your product and services.
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Exploring Cost of Goods Sold and Manufactured
Our first collection of articles dives right into how to calculate COGS and COGMs but also some other important resources you may need. There are other formulas companies may use (including yours) such as the finished goods inventory formula, production input costs and how to price agricultural products.
Next, every business owner must be well-versed in pricing their goods. We can help with that, too, in the informative article, the Five C’s of Pricing Your Products. Finally, you learn the difference between job costing and product costing so you don’t skip those important elements such as raw materials, labor and overhead expenses.
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Gross and Net Profits and Pricing Strategies
Believe it or not, the new entrepreneur may be stumped on the determining gross profit margins or even understanding the differences between gross and net profits. The first trio of articles helps keep you on top of your game with examples.
How do you price your products or services, and which pricing strategy is best? If you don’t know, we’ve offered up some pricing strategy comparisons including penetration pricing, transfer pricing and relative pricing to help you determine the best strategy for your goods or services.
You will also learn how to use relative pricing to gain more profits and a one-stop guide on how to come up with set prices so you do make profits on a consistent basis.
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You just can’t jump into the world of COGS and COGMs without a base knowledge of inventory costing. In our next group of articles, you’ll learn about FIFO and LIFO, and we also offer a comparison of how different inventory costing methods work to help you make the right decision on inventory management and costing.
Not many are experts at the moving average cost method but we explain that, too. Do you need to change the type of inventory costing method you use, and if you have to sell your business, at what price should you set in-stock inventory before you sell it? A review of these articles will ensure you know what’s important as far as inventory management and costing so your cost of goods sold or manufactured don’t fall to the wayside.
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Tips and Tools
We would be remiss without offering some essential tips including free templates to aid you in COGS and COGMs. Find a free MS Excel sheet template and jump right in! Learn where your COGS and COGMs show on your income statements and how to use T Accounts when determining the values of COGS.
We also have free templates and examples on income statements to show you where you COGS appear and, finally, from that income statement, how to calculate gross profit margins.
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Once you’ve explored this collection of useful resources on COGS and COGM, we’re sure you’ll find working with them and calculating formulas is fun—or at least manageable!
Have questions on COGS or COGM not answered in our guide? If so, drop us a comment below and we’ll be happy to research the answers you seek.