The cost of inventory is one of the most important considerations of any business trying to make a profit. This is because rising costs have a direct impact on profitability. In order to calculate the cost of inventory you must determine the beginning and ending value of inventory along with the value of purchased inventory over a given time period.
Determine the time period. Let's say you want to determine the cost of inventory over a 1 month time period.
Determine beginning inventory. This is the value of inventory at the beginning of the month (or time period). Let's say beginning inventory is valued at $30,000.
Add up the cost of inventory purchases over the last month (or period of time that is being evaluated). Let's say you purchased $10,000 in inventory over the last month.
Take a physical count of the cost of the inventory at the end of the period. This is the value of inventory at the end of the month in our example. Let's say the value of inventory at the end of the month is $5,000.
Calculate the cost of inventory with the formula: The Cost of Inventory = Beginning Inventory + Inventory Purchases - Ending Inventory. The calculation is: $30,000 + $10,000 - $5,000 = $35,000.
- Investopedia: How to Calculate Cost of Goods Sold (CoGS)
- SimpleSubjects: Accounting
- Masao Nakamura, Sadao Sakakibara and Roger Schroeder. "Adoption of Just-in-Time Manufacturing Methods at U.S.- and Japanese-Owned Plants: Some Empirical Evidence," pages 230-231. IEEE Transactions on Engineering Management, 1988.
- Electronic Code of Federal Regulations. "Regulation S-X, 17 CFR Part 210: Sec. 210.5-02 Balance sheets." Accessed Aug. 1, 2020.
Working as a full-time freelance writer/editor for the past two years, Bradley James Bryant has over 1500 publications on eHow, LIVESTRONG.com and other sites. She has worked for JPMorganChase, SunTrust Investment Bank, Intel Corporation and Harvard University. Bryant has a Master of Business Administration with a concentration in finance from Florida A&M University.