How to calculate Cost of Goods Used (COGU) using beginning inventory, purchases, and closing inventory.

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

• A. Purchases divided by store sales
• B. Beginning inventory minus closing inventory
• C. Beginning inventory plus purchases minus closing inventory
• D. Net profit minus overhead costs

Answer: (C)

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.

COGU Made Simple: The Real-World Formula Behind Used Inventory

Let’s start with a quick mindset check. Why should you care about the Cost of Goods Used (COGU) if you’re just tallying numbers on a sheet? Because COGU helps you see the actual cost of the goods that were used to make the products you sold during a specific period. In a sandwich shop or any retail operation, that number directly shapes gross profit, pricing decisions, and how efficiently you’re turning inventory into sales. If you track it accurately, you don’t just crunch numbers—you get a clearer picture of what’s driving your bottom line.

What is COGU, exactly?

COGU stands for the cost of goods used. It’s the cost tied to the goods that were available for sale during a period and then used up (or sold) by the end of that period. The tidy little formula behind COGU is:

Beginning inventory + Purchases − Ending (closing) inventory = COGU

Think of it as the simple math that answers this question: Of all the goods I started with, plus what I bought, how much did I actually use or sell by period’s end?

Why that formula works (and what it means in practice)

Here’s the thing: you start with stock on hand (beginning inventory). Over the period, you add more stock through purchases. At the end, you don’t want to count everything you had at the start plus everything you bought as “used.” Some of that stock is still sitting on shelves or in the back room (closing inventory). Subtracting what’s left gives you the cost of the goods that were consumed or sold during the period.

In a place like Jersey Mike’s—where breads, meats, cheeses, veggies, condiments, and packaging all have costs—this math matters. If your ending inventory is higher than you expect, it nudges COGU down; if ending inventory is lower, COGU goes up. Either way, the number helps you see how much you actually spent on the food and materials that were turned into sandwiches and other items for customers.

A quick, tangible example

Let’s walk through a simple scenario to anchor the idea.

• Beginning inventory: $12,000

• Purchases during the period: $5,000

• Ending inventory: $3,000

COGU = 12,000 + 5,000 − 3,000 = $14,000

That means, during this period, $14,000 worth of goods were used (or sold). If your sales brought in $20,000, your gross profit would be influenced by that $14,000 cost line. Without a correct COGU figure, you might misjudge gross margin, set prices, or schedule orders too aggressively or too conservatively.

Common missteps (and why they mislead)

You’ll sometimes see people reach for other quick calculations that sound reasonable but don’t capture the full picture:

• Purchases divided by store sales: This tells you something about how much you bought per dollar sold, but it doesn’t show how much you actually used. It ignores what you started with and what you kept for later use.

• Beginning inventory minus closing inventory: This ignores new purchases entirely. It can misrepresent how much inventory was “used” because it leaves out the goods you bought in the middle of the period.

• Net profit minus overhead costs: This is a profitability measure, not an inventory cost calculation. It’s the wrong tool for determining how much inventory cost was consumed.

In short, COGU is specifically about the goods you had, bought, and still had at the end, giving you a true view of what was consumed. That precision matters when you’re aligning menu pricing, supplier terms, and waste control with actual costs.

Connecting COGU to a Jersey Mike’s-style operation

Picture a week in a busy shop. You start with a stock of bread loaves, slices of deli meat, blocks of cheese, vegetables, sauces, and packaging. Each item has a cost, foods go out the door daily, and some items don’t get used as perfectly as you’d hope—bread goes stale, vegetables wilt, meat trims appear. All of that affects the closing inventory. If you don’t account for it, you’ll misread how much you spent on the goods you actually sold.

That’s why restaurants and small retailers lean on COGU alongside COGS (cost of goods sold). COGS focuses on the cost associated with items that were sold, while COGU gives you a broader view of what was used from everything you had on hand, including what wasn’t sold. When you combine both lenses, you get a sharper sense of menu profitability, supplier performance, and even waste levels.

Practical tips you can apply (without turning this into a spreadsheet epic)

• Track your starting point and ending point consistently. Use the same inventory valuation approach (physical counts, then price them at cost) so your beginning, purchases, and ending numbers line up.

• Reconcile regularly. If ending inventory is off by a little, it can throw the whole COGU calculation off. A quick monthly check helps keep things honest.

• Separate categories. It helps to break inventory into groups (bread, meat, cheese, produce, packaging) so you can spot which areas drive COGU up or down. This also supports targeted waste reduction.

• Use a reliable tool. Simple spreadsheets work, but many shops rely on inventory or POS integrations—tools like QuickBooks for inventory, or specialized apps such as inventory management systems—that tie purchases, stock levels, and sales together. The right tool reduces human error and speeds up month-end closes.

• Watch for spoilage and waste. If a lot of bread goes stale or cheese portioning leaves a lot of waste, your COGU will reflect higher usage. That signals an opportunity to adjust orders, storage, or portion control, not just to “cook the books.”

• Tie to pricing decisions. If COGU trends upward over several periods, you might need to revisit pricing, supplier terms, or portion sizes. The math isn’t just numbers on a page—it helps with smarter decisions.

A quick real-world workflow you can replicate

• Step 1: Take inventory at the start of the period (beginning inventory).

• Step 2: Record all purchases during the period (supplies, ingredients, packaging).

• Step 3: Count or estimate ending inventory at the end of the period.

• Step 4: Do the math: Beginning inventory + Purchases − Ending inventory = COGU.

• Step 5: Compare COGU to sales and COGS to gauge gross profit and menu efficiency.

• Step 6: Investigate any big swings in COGU, especially if waste, theft, or supplier changes show up in the numbers.

Let me connect the dots with a small digression, because it’s easy to miss how this plays into everyday operations. If you’re managing a crew that handles a lot of breads and cheeses, you’ll notice that even small daily variances can add up by month-end. One more loaf wasted here, an extra slice trimmed there, and suddenly your COGU doesn’t match your sense of “what we used.” The numbers then become a mirror for how well you’re controlling inventory, training staff, and forecasting orders. It’s all part of the same wall—one brick after another—that supports healthy margins.

Putting it all in plain language

COGU is the cost you incur for the goods that were actually used during a period. It’s built from what you started with, what you bought in that window, and what you still have left at the end. When you lay those pieces together, you see the true cost of the goods that moved through your operation, which is essential for pricing, profitability, and operational discipline.

A few closing thoughts

• The right formula matters. The equation Beginning inventory + Purchases − Ending inventory = COGU isn’t a flashy trick; it’s the clean way to capture what your shop spent on the goods that turned into sandwiches and smiles.

• Context matters. In a bustling shop, inventory isn’t just numbers—it’s people, processes, and timing. How you count, how you order, and how you store all influence your COGU.

• Balance is the goal. You want a COGU that reflects solid use without excessive waste. That balance supports stable margins and sustainable growth.

To wrap it up with a practical mindset: next time you’re looking at a set of numbers, ask yourself how the beginning stock, the purchases, and the ending stock tell the story of what was actually used. When you connect those dots, you’re not just solving a math problem—you’re gaining a clearer view of costs, operations, and the health of the business you’re helping run.

If you’re exploring Phase 3 concepts, this framing helps you see how inventory math ties into broader topics like profitability, supplier management, and day-to-day control. It’s a small but mighty piece of the bigger picture, and it’s one you’ll likely reference again and again as you move through more advanced material.