Core formulas
The formulas to keep straight
COGS = beginning inventory + purchases and production costs - ending inventorygross profit = revenue - COGSgross margin = gross profit / revenueunit cost = batch cost / sellable unitsWhat is the COGS formula for handmade products?
The COGS formula is beginning inventory plus purchases and production costs minus ending inventory. It measures the cost of goods sold during the period.
For handmade sellers, production costs can include materials, direct labor, packaging tied to the product, and production supplies. General business expenses are tracked separately.
The COGS example was checked July 3, 2026. This is pricing education, not tax advice.
Handmade COGS example, checked July 3, 2026
| Line | Amount | Formula role |
|---|---|---|
| Beginning inventory | $300 | Start value |
| Added materials and production cost | $1,200 | Purchases and production |
| Ending inventory | $420 | Still unsold |
| COGS | $1,080 | $300 + $1,200 - $420 |
How is COGS different from unit cost?
COGS is a period number. Unit cost is a pricing number for one sellable item. They are connected, but they answer different questions.
Use unit cost to set prices. Use COGS to measure profit after sales happen.
If unit costs are wrong, COGS and profit reports will also be weaker.
COGS vs unit cost, checked July 3, 2026
| Metric | Answers | Use |
|---|---|---|
| COGS | What did sold products cost? | Profit reporting |
| Unit cost | What does one sellable unit cost? | Pricing |
| Inventory value | What unsold stock remains? | COGS formula |
| Gross margin | What share of sales remains? | Business health |
What records do handmade sellers need for COGS?
Handmade sellers need beginning inventory, purchases, production batches, units made, units sold, damaged units, and ending inventory. Without those records, COGS becomes guesswork.
A simple spreadsheet is enough at the start if it is kept current.
The important habit is separating supplies used in sold products from supplies still sitting on the shelf.
- Beginning inventory value.
- Materials bought.
- Production batches.
- Sellable units made.
- Units sold.
- Ending inventory value.
Decision table
COGS record decision table, checked July 3, 2026
| Record | Keep it? | Why |
|---|---|---|
| Material receipts | Yes | Supports production cost |
| Batch sheets | Yes | Connects cost to units |
| Damaged units | Yes | Affects sellable unit cost |
| General ads | Separate | Not COGS |
| Owner draw | Separate | Not product cost |
Worked examples
Examples you can compare against your own numbers
Example: monthly handmade COGS
A maker starts the month with $300 inventory, adds $1,200 cost, and ends with $420 inventory.
| Beginning inventory | $300.00 | |
|---|---|---|
| Added cost | $1,200.00 | |
| Ending inventory | $420.00 | |
| COGS | $1,080.00 |
Takeaway: Unsold inventory is not counted as COGS for that period.
Action checklist
Before you use this number in the real business
- 1Record beginning inventory.
- 2Track purchases and production costs.
- 3Track units made and sold.
- 4Count ending inventory.
- 5Calculate COGS for the period.
- 6Use unit cost for pricing decisions.
Common mistakes
Mistakes that make the answer look better than reality
FAQs
Questions people ask before making the decision
How do handmade sellers calculate COGS?
Use beginning inventory plus purchases and production costs minus ending inventory.
Are supplies COGS when bought?
Not always. Supplies still in inventory are not the same as costs tied to goods sold.
Does handmade labor count in COGS?
Direct production labor can be part of product cost for pricing. Tax handling can depend on setup, so verify with a tax professional.
Is packaging part of COGS?
Packaging tied to the product can be included in unit cost. General shipping supplies should be tracked consistently.
Why does ending inventory reduce COGS?
Ending inventory is still unsold, so its cost is not counted as goods sold in that period.
Sources and notes
Where the assumptions come from
Reference definition for gross margin and gross profit.
General cost, margin, fee, and pricing workflow used in these examples.
How FeeProofed checks formulas, examples, source notes, and calculator-backed guide content.