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COGS Explained

Jonathan Schuyler
Updated

Key takeaways

  • Cost of Goods Sold (COGS) is the cost of the goods a restaurant actually used during a period: Starting Inventory + Purchases − Ending Inventory.
  • COGS is not the same as purchases. Inventory changes between counts raise or lower COGS.
  • MarginEdge reports COGS for the Category Types Food, Beer, Wine, Liquor, NA Bev, and Retail (plus any custom COGS Category Types). Category Type Other is reported as Expenses.
  • You need at least two inventories to see COGS that reflects inventory. Without inventory counts in the date range, COGS on the Controllable P&L equals purchases.

What is COGS?

Cost of Goods Sold (COGS) is the direct cost of the goods a restaurant sold over a period of time, such as the food and beverage ingredients used to make menu items. COGS in MarginEdge is calculated from your purchases (your processed invoices) and your inventory counts. COGS is also referred to as Cost of Sales, cost of goods, food cost, beverage cost, or usage.

How COGS differs from purchases

COGS differs from total purchases in three ways:

  • COGS includes goods that were on hand at the start of the period and used, even if they weren't purchased in the period.
  • COGS does not include goods purchased in the period that weren't used and are still in inventory.
  • COGS does not include general operating expenses that aren't tied to specific sales.

How COGS is calculated

The COGS formula

COGS = Starting Inventory + Purchases − Ending Inventory

The same formula can be written as COGS = Purchases + (Starting Inventory − Ending Inventory). The part in parentheses is the inventory adjustment, so COGS = Purchases + Inventory Adjustments.

  • If inventory value goes down during the period, the inventory adjustment increases COGS.
  • If inventory value goes up during the period, the inventory adjustment decreases COGS.

Purchases include the miscellaneous charges booked to each Category, such as taxes and delivery fees. To learn how those are booked, see Handling Taxes, Delivery and other Miscellaneous Charges.

Cost percentage (food cost %)

MarginEdge calculates a cost percentage for each Category Type: COGS for the Category Type divided by sales for the same Category Type. For example, Food COGS divided by Food sales gives your food cost %. Sales lines count toward a Category Type only if they have a Category Type set and are included in reporting.

Example

A restaurant reviews Food COGS for one accounting period.

  • Starting Food inventory: $2,000
  • Food purchases during the period: $5,000
  • Ending Food inventory: $1,500
  • Food COGS: 2,000 + 5,000 − 1,500 = $5,500
  • Food sales during the period: $18,000
  • Food cost %: 5,500 ÷ 18,000 = 30.6%

Purchases were 5,000, but COGS is 5,500 because the restaurant used 500 more in Food from inventory than it bought.

COGS vs. Expenses

COGS is the direct cost of producing sales in a period. Expenses (also called operating expenses or indirect expenses) are the general costs of running the business that aren't tied to a specific sale.

For example, to sell a cheeseburger, a restaurant buys buns, ground beef, and cheese. Those ingredients are COGS. The restaurant also pays rent, utilities, labor, and repairs, but none of those are tied to selling the cheeseburger. Those are Expenses.

Which Category Types count as COGS

  • COGS: Food, Beer, Wine, Liquor, NA Bev, and Retail, plus any custom COGS Category Type you add.
  • Expenses: Other. You can't create a custom Category Type that reports under Expenses.

Every Product is coded to a Category, and every Category has a Category Type. The Category Type decides whether a Category's purchases appear under COGS or Expenses on the Controllable P&L. The Category Type doesn't change how data is exported to your accounting system. To change a Category Type, see General Ledger Accounts, Categories, and Category Types. To add one, see Adding a Custom COGS Category Type.

Where COGS appears in MarginEdge

The main COGS reports are under Performance in the main menu.

Controllable P&L

The Controllable P&L shows COGS and cost percentages by Category Type for any date range. See Controllable P&L.

Usage Report

The Usage Report (formerly the Food Usage Report) shows COGS and cost percentages down to the Product level, for the period between two inventories. See Usage Report - your COGS breakdown.

Budgets

Budgets compare purchases and inventory adjustments by Category with sales for the same Category Type. See Understanding my Budget Details.

Category Report (purchases only)

The Category Report shows purchases only, not COGS, so it won't match your COGS when you take inventory. See Category Report.

For a side-by-side comparison of these reports, see Understanding Your Costs with the Reports in MarginEdge.

How inventory counts affect COGS

How the Usage Report uses inventory counts

The Usage Report uses only the counts on the starting and ending inventory dates you select. If a Product has no count on one of those dates, the Usage Report treats its value as zero.

How the Controllable P&L and Budgets use inventory counts

The Controllable P&L and Budgets let you choose any date range, so they decide for each Product whether to include an inventory adjustment:

  • If the Product was on a count sheet used for an inventory in the date range, an adjustment is included, even if the Product wasn't counted. An uncounted Product on that count sheet is valued at zero.
  • If the Product wasn't on any count sheet used in the date range, no adjustment is included for that Product.
  • If no inventory was taken in the date range, no inventory adjustments are included, and COGS equals purchases.

Because of this, keep each count sheet limited to Products you count every time you use it. Use a separate count sheet for Products you count more often, such as a weekly liquor count.

Example: why the P&L and Usage Report can differ

A restaurant takes a starting and ending inventory. No Food was purchased in between.

  • Ground beef was counted both times, falling from 16.60 to 13.28, an adjustment of $3.32.
  • French fries were on the ending count sheet but not counted, so the starting value of $10.35 becomes an adjustment.
  • American cheese was removed from the ending count sheet. Its starting value was $5.00.
  • Usage Report Food COGS: 3.32 + 10.35 + 5.00 = $18.67
  • Controllable P&L Food COGS: 3.32 + 10.35 = $13.67, because the cheese wasn't on a count sheet used in the period.

Editing an inventory after it's closed

If you reopen an inventory, change counts, and close it again, the Controllable P&L updates to reflect the new counts.

How COGS relates to your accounting system

MarginEdge exports purchases to the general ledger accounts mapped to each Category. MarginEdge's inventory adjustment entry records only the change in inventory value from one period to the next, and it assumes purchases are booked to COGS accounts. If Categories are mapped to inventory accounts instead, inventory will be overstated and COGS understated in your accounting system. [Confirm the help center article that explains how the inventory adjustment entry is exported, and link it here.]

Troubleshooting COGS

COGS is the same as my purchases

Work through these checks in order:

  1. Check for inventories in the date range. COGS reflects inventory only when there are at least two inventories. With no inventory in the date range, the Controllable P&L shows COGS equal to purchases.
  2. Check that the inventories are closed. [Confirm whether open inventories are excluded from COGS.]
  3. Check the count sheets. On the Controllable P&L, Products not on a count sheet used in the date range get no inventory adjustment.
  4. Still unsure? Submit a support request with the date range and the report you're using.

The Controllable P&L and Usage Report show different COGS

Work through these checks in order:

  1. Match the date range to inventory dates. The Usage Report runs between two inventories. Set the Controllable P&L to the same dates.
  2. Check for Products missing from a count sheet. A Product left off the ending count sheet is valued at zero on the Usage Report but gets no adjustment on the Controllable P&L.
  3. Check for multiple count sheets. If you counted with more count sheets on one date than the other, compare which Products were on each.
  4. Still different? Submit a support request with both reports' date ranges and totals.

COGS in MarginEdge doesn't match my accounting system

Work through these checks in order:

  1. Check for invoices not yet exported. Look for pending exports or exports in error.
  2. Check your Category mapping. Categories should be mapped to COGS accounts, not inventory accounts. See General Ledger Accounts, Categories, and Category Types.
  3. Check for mapping changes during the period. Changing a Category's accounting system account doesn't move COGS already booked to the old account.
  4. Check for entries made only in your accounting system. Bills or journal entries entered directly in your accounting system aren't in MarginEdge.
  5. Still different? Submit a support request with the period, both COGS totals, and your accounting system.

COGS looks too high or too low

Work through these checks in order:

  1. Check the inventory counts. A missed or mistyped count changes the inventory adjustment. Reopen the inventory, correct the count, and close it again.
  2. Check for missing invoices. Purchases come from processed invoices. Make sure all invoices for the period are uploaded and closed.
  3. Check Category Types. A Category set to the wrong Category Type moves its purchases between COGS Category Types or into Expenses.
  4. Check Product Categories. The Controllable P&L uses each Product's current Category, so changing a Product's Category moves its past costs on the P&L.
  5. Still wrong? Submit a support request with the date range and Category Type.

Frequently asked questions about COGS

Is COGS the same as purchases?

No. COGS is purchases plus the change in inventory. They're equal only when inventory value didn't change or no inventory was taken.

How many inventories do I need to see COGS?

At least two: one at the start and one at the end of the period.

Do I need PMIX mapping to calculate COGS?

No. PMIX mapping (mapping Products and Recipes to your point-of-sale buttons) isn't used to calculate COGS.

Are taxes and delivery fees included in COGS?

Yes. Miscellaneous charges booked to a COGS Category are part of that Category's purchases, so they're included in COGS.

Why are some costs under Expenses instead of COGS?

Categories with Category Type Other report under Expenses. Change the Category Type if the Category should be COGS.

Who can see COGS reports?

[Confirm which user roles can see the Controllable P&L, Usage Report, and Budgets, and whether Shared Device users have access.]

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