How do you calculate Cost of Goods Used (COGU)?

The calculation of Cost of Goods Used (COGU) is primarily concerned with determining the total cost of the goods that were available for sale during a specific period and then accounting for the inventory that remains at the end of that period. The correct method to arrive at COGU involves taking the beginning inventory, adding any purchases made during the period, and then subtracting the closing inventory. This formula allows businesses to find out how much inventory was sold and at what cost during that time frame.

By including the beginning inventory and purchases, you establish the total inventory available for sale. Subtracting the closing inventory reveals the cost associated with the goods that were actually sold. This calculation is crucial for accurately assessing the cost of goods sold (COGS), which directly impacts gross profit and financial statement insights.

In this context, the other methods presented do not properly address how to accurately compute COGU. For instance, simple division of purchases by store sales does not provide a comprehensive picture of inventory costs. Similarly, merely subtracting closing inventory from beginning inventory does not consider additional purchases made, which are essential for a correct assessment. Lastly, net profit minus overhead costs pertains to profit calculation and does not relate to inventory management or COGU calculation.