When running a business, you’re probably curious about the net profit from each product sold. To answer that, you need to understand one important component of financial reporting: COGS, or Cost of Goods Sold.
COGS isn’t just a number on paper; it’s the foundation for understanding how much it costs to produce a product or service. To better understand its benefits and how to calculate it, check out this article, Labamu Friends!
What is HPP?
According to Investopedia, Cost of Goods Sold (COGS) is the total direct costs incurred to produce or acquire goods sold by a business. In English, COGS is known as Cost of Goods Sold (COGS) or Cost of Sales.
These costs include the raw materials and direct labor used to produce the product—but do not take into account indirect costs such as store rent, marketing costs, or administrative staff salaries.
In financial reports, COGS typically appears just below the sales or revenue figures. COGS is a key component in calculating gross profit and gross margin. The higher the COGS, the lower the gross profit.
Oleh karena itu, memahami dan menghitung HPP dengan tepat sangat penting agar kamu bisa menentukan harga jual yang masuk akal, menjaga profitabilitas, dan mengelola bisnis dengan lebih efisien.
Kenapa HPP Penting dalam Bisnis?
COGS isn’t just a number on a financial report. Beyond that, COGS plays a crucial role in determining the financial health of a business. By accurately calculating COGS, you can reap the following benefits.
1. Determine a Realistic Selling Price
Knowing your COGS helps you set a reasonable selling price and still make a profit. Without a proper COGS calculation, you could sell too low and incur a loss, or too high and fail to sell. Therefore, COGS is an essential foundation for your pricing strategy.
2. Calculating Gross Profit and Evaluating Profits
Gross profit is calculated by subtracting revenue from COGS. The higher the COGS, the lower your gross profit. Understanding COGS can help you more accurately evaluate the efficiency of your business operations.
3. Managing Business Taxes
COGS is recorded as a business expense, reducing total taxable income. The higher the COGS, the lower the tax payable. However, this must be balanced—profits should not be reduced by excessive costs.
4. Increase Production Efficiency
Analyzing COGS can help you identify which parts of the production process are consuming the most costs, such as expensive raw materials or inefficient labor. From there, you can take steps to save money and improve efficiency.
5. Read the Financial Health of the Business
COGS can be used as an indicator to assess a business’s financial health, particularly in terms of cost control. If COGS continues to rise without a corresponding increase in sales, it could be a sign that an evaluation is needed. This is crucial to maintaining a healthy business margin.
What Components Are Included in the Cost of Goods Sold?
In general, the cost components included in COGS are direct costs. This means these costs only arise when there is a production process or the purchase of goods for resale. Conversely, if no products are produced or resold, these costs will not arise. Here’s an example.
1. Raw Materials
The cost of raw materials used to manufacture a product—from primary materials to supporting materials—is included in the COGS. For example, fabric for fashion products, wood for furniture, or food ingredients for culinary businesses.
2. Finished Goods Purchased for Resale
If your business purchases finished products (such as a reseller or retail store), the purchase price of those goods is included in the COGS. This also includes purchase discounts, returns, or special discounts from suppliers.
3. Direct Labor Costs
Salaries and wages paid to production staff, craftsmen, tailors, or anyone directly involved in product manufacturing are counted as a component of COGS. They also include allowances or bonuses if relevant to the production process.
4. Freight-In Fee
The cost of bringing raw materials or goods from suppliers to the production site is also calculated as part of the COGS. This can include shipping costs, container costs, and even fuel surcharges.
5. Storage Costs for Raw Materials or Finished Goods
If you rent a warehouse to store raw materials before they are processed, or store merchandise before they are sold, the costs are included in COGS—as long as they are directly related to the product.
6. Other Production Costs (Factory Overhead)
Fixed costs directly related to the production process, such as machine depreciation, equipment maintenance, and factory electricity, are also included. Although these costs don’t always change, they are still included because they support the production of goods.
7. Product Packaging
Costs for packaging that is part of the product, such as boxes, bottles, or labels, are also included in COGS, especially if the packaging influences consumer purchasing decisions.
What is not included in the HPP?
Beberapa biaya yang tidak boleh dimasukkan ke dalam perhitungan HPP umumnya adalah biaya-biaya ini bersifat tidak langsung, administratif, atau tidak berkaitan langsung dengan proses pembuatan produk. Berikut ini beberapa contoh biaya yang tidak termasuk dalam HPP.
1. Distribution Costs to Consumers
Shipping costs from the warehouse to the customer, such as shipping costs borne by the buyer or courier service, are not included in the COGS. These costs are classified as operational or logistics costs.
2. Office Rent and Utilities
Operational costs such as office rent, electricity, and water for administrative space are also not included in COGS. This is because office space is not directly involved in the production process.
3. Biaya Iklan dan Promosi
Marketing costs, including online advertising, social media promotions, and banner placement, are included in sales costs, not production costs. Therefore, they are not included in COGS.
4. Non-production employee salaries
Salaries for administrative staff, HR, finance, or managers are not included in COGS because they are not directly involved in the product manufacturing process. Similarly, fees for professional services such as legal consultants, accountants, or notaries are also not included in COGS. These costs are categorized as general and administrative expenses.
5. Other Non-operational Costs
All costs not directly related to day-to-day operations are also excluded from COGS. For example, loan interest, depreciation on office buildings, or the purchase of large assets (capital expenditures).
How to Calculate COGS?
To determine the net profit from product sales, YOU first need to know how much it costs to produce that product. This is where COGS (Cost of Goods Sold) comes in, helping you determine the production costs involved in making that product.
In general, the formula for calculating COGS is as follows:
COGS = (Beginning Inventory + Purchases During the Period) – Ending Inventory
To make it clearer, let’s discuss the steps in simple terms so you can apply them directly to your business.
1. Determine the Initial Inventory
Beginning inventory is the total value of merchandise on hand at the beginning of a recording period. This figure is generally taken from the ending inventory from the previous period.
Example: At the beginning of January 2025, Pak Untung Furniture Store had 5 unsold tables in stock and each table was priced at IDR 10 million.
2. Calculate Total Purchases During One Period
Add up all costs of goods or raw materials purchased during the period, including shipping costs, purchase discounts, and allowances.
Example: And throughout 2025, Mr. Untung’s Furniture Store bought another 10 tables with the same value.
3. Determine Ending Inventory
Conduct a stocktake, or physical count, to determine the value of remaining items at the end of the period. This figure will be subtracted from the previous total.
Contoh: Di akhir Desember 2025, tersisa 3 meja yang belum terjual.
4. Enter Other Production Costs (If Any)
If you manufacture the goods you sell yourself, add other direct costs such as production employee salaries, additional material costs, and directly related factory operating costs.
Example: In the case of Mr. Untung’s Furniture Store, this cost is considered non-existent because Mr. Untung does not produce the tables he sells himself—but buys them from suppliers.
5. Calculate the COGS
Use the formula mentioned above to calculate COGS:
COGS = (Beginning Inventory + Purchases) – Ending Inventory
COGS = (Rp. 50,000,000 + Rp. 100,000,000) – Rp. 30,000,000
= Rp120.000.000
So, the HPP for 2025 is IDR 120 million.
By understanding and regularly calculating COGS, you can more accurately determine your profit margin, set more appropriate selling prices, and, of course, create a more efficient business strategy. Furthermore, financial management will feel more structured because you know where your business expenses are going.
So, to make recording and calculating COGS (Cost of Goods Sold) more convenient, you can download the Labamu app from Google Play or the App Store. Let’s make every business decision more measurable and profitable!
