Cost of Gold Sale (Cogs): Definition, Purpose, Calculation Formulas and Explanations

To be able to run a business, a businessman must take into account all the costs needed to produce a product until it reaches the consumer. One of the things that is very important and must be done is to determine the price of production costs so that the business can determine its sales profit.

The following is an explanation regarding cost of gold sale as the cost of goods sold which can help you calculate the cost of products that must be sold to consumers to achieve a profit or profit.

Definition of Cogs (Cost of Gold Sale )

Cost of gold sale is the English term for the word Cost of Goods Sold (HPP). COGS or HPP is also considered as a calculation of capital in running a business to determine the amount of profit to be achieved from sales per product. 

Cost of gold sale (COGS)is the calculation of the costs incurred in the process of processing raw materials into products that are suitable for sale and distribution to consumers. COGS is an expense made by a company or business enterprise to produce a product, this pricing involves the base price of the raw materials used, labor costs and the selling price to be set.

Raw material costs in COGS are materials used as a whole in the production process, labor costs are costs incurred for physical and mental effort incurred by workers or employees in producing a product.

This labor cost can also be interpreted as a form of wages or salaries for the labor and effort made by workers in producing raw materials into finished products. On the other hand, the selling price set is the percentage generated after knowing the COGS owned by a business or company.

Cogs Goals (Cost of Gold Sale )

COGS has various objectives in the company's business ventures, through COGS, the finances and production costs incurred by the company can be understood clearly. The following are some of the objectives of implementing COGS in business as follows:

• Determine the selling price of the product, through cost of gold sale (COGS)companies can more clearly understand how to determine the selling price range of products in business.
• Determining the need for production costs incurred, a businessman can find out how much it costs to be able to carry out production until it becomes finished material.
• Calculating the profit or profit or loss that can be generated through the sale of products, through cost of gold sale (COGS) of a business will more easily determine the calculation of whether the business is running a profit or loss.
• Regulating the amount of costs in financial reports to facilitate the purpose of using budget funds in business, cost of gold sale (COGS) also aims to make it easier for businesses to manage the use of budget funds regarding where these costs will be allocated in the business that is currently running, what can be purchased through the budget and so on.
• Facilitating the preparation of business financial reports to determine product sales decisions and strategies, through COGS a business has the opportunity to carry out more in-depth and critical analysis to determine decisions and strategies that can bring profit to the business.

Cogs Calculation Formula (Cost of Gold Sale ) and Explanation

It should be noted that to determine the cost of goods sold, we need to know the correct COGS calculation formula. The following is a calculation formula that you can use in determining the cost of goods sold by the method full costing in business:

Raw material costs = xxx

Direct labor cost = xxx

Variable factory overhead = xxx

Fixed factory overhead = xxx

Total production cost = xxxx

COGS or COGS = Total cost of production : Number of units produced

Based on the method full costing In the COGS calculation there are main components consisting of raw material costs, labor costs, factory overhead (fixed costs) and factory overhead (variable costs). Through this method, production costs will be assigned to products, this is because factory overhead, both fixed costs and variable costs, will still be part of the COGS calculation and will only be considered as an element of COGS costs when the product has been successfully sold.

This calculation method is used as a consideration for products that have not been sold so that factory overhead will be used to reduce or add the cost of production to product inventory (both raw materials and finished materials).

This is an explanation of COGS that you can use as a basis for calculating the cost of goods sold, through COGS the selling price of the product will be seen more clearly. COGS can help explain and describe the preparation of an efficient and effective business strategy.

That's all the information about the meaning of COGS and how to calculate the method that can be used to determine the cost of goods sold, I hope you can understand and implement this explanation.