How to calculate COGS in Craftybase

Learn how Cost of Goods Sold (COGS) is calculated in Craftybase.

COGS is shorthand for “Cost of Goods Sold”. This figure is essentially what it cost you in materials to create the products you sold.

The “cost” part of COGS is mainly tallied from the materials you purchased to create your product: for example, if you make ceramic products your COGS would comprise of the cost of your clay and glazes. If you make dresses, then your COGS would perhaps be from your fabric, zips, and buttons.

Your COGS is not simply a tally of estimated material costs for each product you have sold, it is a calculation involving your start and end of year material value, alongside your purchases, external labor and other costs.

Not all costs are included in this calculation, so you can’t for example include the cost of your labor, your rent or your subscriptions in this calculation. This is because they are seen as not directly related to making your products (in accountant speak, this is known as an “indirect cost” or an "overhead cost"). Read more about the difference between indirect and direct costs here.

More details on COGS can also be found in our blog post here: How do I calculate my Cost of Goods Sold?

How to calculate your COGS in Craftybase

To calculate your COGS for the IRS requires 6 different figures:

  1. Inventory at beginning of year
  2. Purchases (Less Personal Use)
  3. Cost of External Labor
  4. Materials & Supplies
  5. Other Costs
  6. Inventory at end of year

We'll show you how to obtain these tallies from your Craftybase reports.

Inventory at Beginning of Year

The total value of all materials in stock on the first day of the year, plus the material cost of all unshipped stock. Note: your internal labor costs are not included in this total, it is materials cost only.

To generate this number, navigate to your Schedule C Guidance report, run this report for the date range of the date range required, and take the number next to the section called "Inventory at Beginning of Year".

Alternatively, you can generate this tally via your Material Valuation report by running the report for the date range required and taking the number in the Total Value row in the Starting Value column.

Purchases (Less Personal Use)

This is your total material expenses for the year, minus any materials or products you have removed from your inventory for Personal Use.

To generate this number, navigate to your Schedule C Guidance report, run this report for the date range of the date range required, and take the number next to the section called Purchases less cost of items withdrawn for personal use.

Cost of External Labor

If you have employed anyone to assist you with your craft business during the year then you would account for this cost here. Keep in mind that this cost is mainly for official employees (that will have a W2). Contracted and casual workers should be instead factored in at Part II, Line 11.

If you have been tracking external labor as an overhead expense with a specific category in Craftybase, you can use the Expense Category Report to generate this number (if you are tracking in this way, you'll want to ensure you remove this category and tally from your Part II) 

Materials & Supplies

This section is reserved for any materials and supplies not already included in your start and end inventory totals above that are also not being claimed as supplies in Part II. 

If you have been tracking extra materials and supplies as an overhead expense with a specific category in Craftybase, you can use the Expense Category Report to generate this number (if you are tracking in this way, you'll want to ensure you remove this category and tally from your Part II) 

Other Costs

This section is to provide a way of accounting for any other costs directly related to your products that don’t fit into the available categories above.

If you have been tracking other costs as an overhead expense with a specific category in Craftybase, you can use the Expense Category Report to generate this number (if you are tracking in this way, you'll want to ensure you remove this category and tally from your Part II) 

Inventory at End of Year

The total value of all materials in stock on this date, plus the material cost of all unshipped stock. Note: your internal labor costs are not included in this total, it is materials cost only.

To generate this number, navigate to your Schedule C Guidance report, run this report for the date range of the year you need this report for, and take the number next to the section called "Inventory at End of Year".

Alternatively, you can generate this tally via your Material Valuation report by running the report for the date range required and taking the number under the Total Value row in the Ending Value column.

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