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Understanding how to calculate COGS is essential for MSMEs to maintain healthy and well-managed finances. Cost of Goods Sold (COGS) allows business owners to better understand the total costs incurred, helping them set more accurate product prices and prevent potential losses.
In addition, calculating COGS helps business owners better manage and control their production costs. This allows businesses to operate more efficiently. Properly recording the costs of raw materials, shipping, and inventory makes it much easier to develop an effective business strategy.
Before diving into the formula and calculating COGS, it’s important to understand the key components that determine the selling price. The cost of goods sold is calculated based on the total beginning inventory, which represents the stock of goods available before production begins.
Furthermore, it is essential to record all costs associated with production, including raw materials, shipping, and other related expenses. Additionally, the ending inventory of unsold goods for a given period also contributes to COGS by reducing the total cost.
Cost of Goods Sold (COGS) represents the total production costs incurred to bring a product to the point where it is ready for sale to customers. COGS is essential for business owners, as it allows them to forecast potential profits and set product prices that stay competitive in the market. Here is the formula for calculating it:
COGS = Opening Inventory + Net Purchases – Closing Inventory
By calculating the Cost of Goods Sold (COGS), business owners can better understand how operating costs affect their profit margins. From this point, owners can also anticipate potential losses that may arise from hidden costs often overlooked. To gain a clearer understanding of COGS, consider the following example calculation.
A bakery produces 1,000 sweet bread rolls in a month with the following cost details:
Cost of purchasing raw materials: Rp6,000,000
Electricity costs: Rp2,000,000
Gas costs: Rp1,000,000
Water costs: Rp500,000
Employee costs: Rp7,000,000
From this data, the cost price for each sweet bread roll is:
= (Rp6,000,000 + Rp2,000,000 + Rp1,000,000 + Rp500,000 + Rp7,000,000) : 1000
= Rp16,500
Therefore, the Cost of Goods Sold (COGS) for one sweet white bread is Rp16,500.
Manually calculating COGS increases the risk of errors and takes more time. Especially when market demand increases. To mitigate these risks, the use of digital technology is certainly an option worth considering.
Ocean by BCA is designed to help MSMEs streamline their financial management, making it more practical and accurate. You can use myBCA Bisnis, KlikBCA Bisnis, and API products to streamline record-keeping, monitor cash flow, and enhance operational efficiency.
The API from Ocean by BCA allows you to automatically retrieve your account transaction data. This feature enables faster recording of production costs and income, eliminating the need for manual data entry. This helps save time, enhances data accuracy, and minimizes the risk of errors.
myBCA Bisnis offers access to multiple accounts through a single platform. This feature allows you to easily track and manage incoming and outgoing transactions from multiple sources. MSMEs can also manage their cash flow more efficiently, ensuring that their financial strategies are well-targeted.
Finally, KlikBCA Bisnis helps businesses manage payment transactions to suppliers and other production expenses. Advanced online security ensures transactions are conducted safely and efficiently. This allows MSMEs to maintain a steady and uninterrupted cash flow.
With all these features working together automatically, managing your business operations becomes much easier and more efficient. Find out more about Ocean by BCA’s products here.
