Cost of Goods Sold (COGS) Formula
How apparel brands calculate COGS and why it is the single bridge between merchandising decisions and the P&L.
What COGS measures
COGS is the total cost of inventory sold in a period. It is derived from the opening inventory position, purchases, and the closing inventory position — all at cost.
COGS = BOP Inventory + Purchases − EOP Inventory (all at cost)COGS is the single largest line on the apparel P&L after net sales. It flows directly into gross margin, gross margin percent, GMROI, and inventory turns.
Worked apparel example
Opening inventory at cost $450K, purchases $600K, closing inventory at cost $480K.
COGS = $450K + $600K − $480K = $570K
Every sale of a unit in the period consumed its cost — the aggregate is $570K.
COGS landed at $570,000. Feeds into gross margin, GMROI, and inventory turns.
What COGS includes (and doesn't)
- Included: landed cost of goods (FOB + freight + duty + inbound), inventory adjustments, shrink
- Sometimes included (depending on GAAP interpretation): occupancy, distribution center labor
- Usually not included: marketing, selling expenses, payment processing, G&A
Failure modes we see
COGS reviewed only at period close. COGS is a trailing number. In-season, merchandising decisions that affect COGS (cost creep, shrink, markdown-driven inventory write-downs) accumulate invisibly until the quarterly close.
How RetailNorthstar handles COGS
COGS decomposes live at department, class, and style level. Cost creep against line-plan target, shrink, and inventory adjustments all feed the running COGS number — so the trailing indicator gets close to a leading signal.
Related formulas
- Average Unit Cost — per-unit view of the same math
- Gross Margin % — COGS is the primary input
- Inventory Turns — COGS divided by average inventory
See COGS decomposed live — cost creep, shrink, and markdown impact traced to the specific styles driving them.
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