Cost of Goods Sold (COGS) is the total of all the costs that go into producing a product. For farms and other food businesses, accurately calculating COGS is crucial for understanding how to price meat and produce ensure profitability and market competitiveness. Calculating this value can become complicated depending on the number of different products you produce and the costs associated with producing each.

Costs of Good Sold Formula

The basic COGS calculation is:

Value of Inventory at the Beginning of the Year
+ Additional Inventory Cost (inventory purchased throughout the year)
- Inventory at the End of the Year
= Cost of Goods Sold

How to Calculate Costs of Goods Sold for Agriculture and Farm Businesses, Ranches & CSAs

In order to use the Costs of Goods calculation, you must calculate and measure the values within the calculation. Here is the 6-step process:‍

‍Step 1: Calculate Inventory at the Beginning of the Year

This inventory includes:

• Merchandise in stock
• Raw materials
• Finished products
• “In-progress” products

Step 2: Determine Product Costs per Year

These are all costs that go directly into production or purchasing of a product:

• Cost to buy raw materials (seeds, livestock, dairy, flour, etc.)
• Packaging costs
• Cost of buying products for resale (if you are a food hub)
• Cost of delivery to get materials/products‍

Step 3: Determine Production Costs

These are all costs that indirectly go into production or purchasing of a product:

• Cost of equipment to produce or package goods
• Depreciation and maintenance of equipment
• Cost of labour and employees
• Software/programs used for administration (such as your farm website and farm inventory software)

Step 4: Determine Facility Costs

These are all costs that goes into maintaining and use of your facilities:

• Rent or mortgage
• Utility costs
• Cost of maintaining land or facilities

Step 5: Determine Inventory at the End of the Year

The final value to be determined is your inventory at the end of the business year. The easiest way to determine this value is to take physical inventory. Any lost or worthless inventory should not be included in this value as it can not be sold.

Tip: Use Local Line's farm inventory management software to make product and inventory tracking easier to manage and report on. With features like real-time inventory updates and restock reminders, it ensures efficient management and customer satisfaction.

Step 6: Do Your Calculation

After you have collected all of the values from the steps listed above, you are ready to do your COGS calculation. For example:

$20,000 (inventory at the beginning of the year)
+ $15,000 (product costs + production costs + facility costs)
- $30,000 (inventory at the end of the year)
= $5,000 (COGS)

Simplify Your Farm’s Financial Tracking with Local Line

Are you a farmer or food producer and want to keep your inventory, orders, customers, and sales channels synced? Build a farm website, sell farm goods direct to customers online and manage your farm sales all in one place with Local Line.

Local Line provides automated farm reports and analytics, simplifying the calculation of essential metrics like Cost of Goods Sold (COGS) for agricultural and farm sales.

With over 50 customizable reports, you can monitor sales trends, manage farm inventory in real-time, and access unique customer insights to enhance your farm operations and boost profitability.