Clarifying COGS: The Only Calculation You Need, the Industry “Rules” to Break, and the Financial Impact They Create

In this episode, The Good Food CFO, Sarah Delevan breaks down the concept of cost of goods sold (COGS) and its importance in understanding the financial health of your business. 

 

We explore the differences between accrual-based accounting and cash-based accounting, and how each method affects the calculation of COGS. We also clarify the distinction between unit COGS and business COGS, and the significance of knowing both. 

 

Then Sarah shares the industry “rules” that she breaks, like including overhead in COGS and emphasizes the importance of keeping COGS elements separate. 

 

You’ll hear:

• Why the concept of cost of goods sold (COGS) is crucial for assessing the financial health of a business.

• How accrual-based accounting and cash-based accounting have different implications for calculating COGS and understanding cash flow.

• The importance of differentiating between unit COGS and business COGS, as they provide different insights into the profitability of a product and the overall business.

• Why excluding overhead from COGS allows for a clearer understanding of the true cost of producing a product.

• How keeping COGS elements separate and analyzing them individually helps identify areas for cost optimization and pricing strategies.

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