What is Cost of Goods Available Formula?
The cost of goods available for sale formula determines the total inventory cost available to be sold to customers at the beginning of the accounting period. It tells you the total goods available after accounting for the cost of finished goods inventory at the beginning of the year. It includes the cost of raw materials and labor used to manufacture these products.
Significance of Cost of Goods Available Formula in E-commerce Business
The cost of goods available helps you measure the inventory an e-commerce company currently has at hand. Some of the formula’s significance include:
- Tracking all costs incurred in obtaining and processing a product
- Providing insights that businesses can use to evaluate gross profits
- Determine the value of goods that a business can sell during a particular time
Applications of the Cost of Goods Available Formula
The cost of goods available factors in products that remained unsold in the previous period and are carried to the next cycle. Some of the applications of the cost of goods available formula are:
- Helping retail, distribution, and manufacturing businesses sell goods to their customers
- Allowing manufacturers to calculate the money spent from production to packaging
- Assisting retailers to know the cost of procuring the product and other related expenses
Cost of Goods Available Formula
Definition of Each Element Used in the Formula
Here are the components you need to use the cost of goods available formula:
- Cost of finished goods inventory at the start of the year: The cost of inventory at the start of an accounting period.
- Cost of goods produced during the year: It includes the costs of all inventories manufactured throughout the year.
How to Use the Cost of Goods Available Formula to Calculate a Business’ Cost of Goods Available?
Suppose Company X manufactures 500 biscuit packets for a total production cost of A$2000. The company had 50 packets with it as an inventory worth A$350 at the year’s start.
COGS = A$2000 + A$350 = A$2350
What Can You Infer From the Result of the Cost of Goods Available Formula?
The cost of goods available for sale formula lets you determine the inventory a business has at a given period. It helps e-commerce businesses stock up on products that customers can order during sales.