Definition of COGS
COGS stands for “cost of goods sold”. See definition below. Definition from this page.
Definition: Cost of goods sold is the accumulated total of all costs used to create a product or service, which has been sold. These costs fall into the general sub-categories of direct labor, materials, and overhead.
In a service business, the cost of goods sold is considered to be the labor, payroll taxes, and benefits of those people who generate billable hours (though the term may be changed to “cost of services”).
In a retail or wholesale business, the cost of goods sold is likely to be merchandise that was bought from a manufacturer.
The COGS value can be calculated in multiple ways. For this reason, Ordoro does not calculate the COGS value for our customers. Instead, it is a static value that is entered into Ordoro. This value can be updated in Ordoro in two different ways.
How to update COGS in Ordoro
#1 – In the UI
You’ll update the value per unit. See screenshot below. Please note, the PO Unit cost *is not* the same as the COGS value. Read more about the PO Unit cost here.
#2 – In CSV upload
Go to Settings -> Data Import -> Update Products. Use the Weighted Average Cost field.
What is FIFO or LIFO?
Ordoro stores this value as a static value since there are multiple ways to calculate it. Two common ways are FIFO and LIFO. For more information about them, see below. Again, definitions coming from this page.
- First in, first out method. Under this method, known as FIFO, the first unit added to inventory is assumed to be the first one used. Thus, in an inflationary environment where prices are increasing, this tends to result in lower-cost goods being charged to the cost of goods sold.
- Last in, first out method. Under this method, known as LIFO, the last unit added to inventory is assumed to be the first one used. Thus, in an inflationary environment where prices are increasing, this tends to result in higher-cost goods being charged to the cost of goods sold.