Track cost of goods sold and landed cost

Direct answer

For this review, explain COGS as the product-level cost foundation for pricing, margin, taxes, and inventory decisions.

Why this question comes up

Sellers struggle to keep SKU-level cost data accurate as suppliers, freight, and bundles change. This guide turns that concern into a review that can be repeated with a defined period, consistent inputs, and a visible trail back to the records.

Records to gather

• Supplier invoices with unit costs and currency
• Freight, duty, tariff, and customs documentation per shipment
• Inbound handling, warehousing-in, and inspection costs
• Inventory counts at period start and end, with valuation method stated
• Returns, damage, shrinkage, and write-off records

Review workflow

1. Decide what lands in the unit cost. Landed cost is supplier price plus freight, duty, insurance, and inbound handling. Leaving freight in operating expense understates COGS and overstates gross margin — often by several points.
2. Allocate shipment costs to units. A container carrying three SKUs needs freight split by weight, volume, or value. Pick one method, document it, and apply it consistently.
3. State the valuation method. FIFO, LIFO, and weighted average produce different COGS from identical purchases. The method must be consistent period to period and disclosed.
4. Reconcile inventory movement. Opening inventory plus purchases minus closing inventory should equal COGS. A gap means shrinkage, miscount, or misposting — investigate rather than plug.
5. Handle currency at the right rate. For imported goods, the rate at receipt is usually the relevant one. Revaluing at period end mixes a purchasing decision with an FX result.

What a useful answer should include

• Landed cost per unit with each component broken out
• The allocation method for shipment-level costs, stated and applied consistently
• Inventory valuation method named, with confirmation it did not change
• An inventory rollforward that reconciles to COGS without a plug
• Gross margin by SKU on landed cost, not supplier price
• Shrinkage, damage, and write-offs shown separately from cost of sale

Common failure modes

• Using supplier price as unit cost. Freight and duty commonly add 10–30% and their omission flatters every margin built on the number.
• Allocating freight evenly across mixed SKUs. A heavy low-value item absorbs the same cost as a light high-value one, distorting both margins.
• Switching valuation methods. It changes reported COGS and profit, and without disclosure it looks like performance rather than accounting.
• Plugging the inventory reconciliation. A forced balance hides shrinkage, theft, or a receiving error — the exact things the reconciliation exists to surface.

Community context

The linked community posts show why people search for this topic and which parts create confusion in practice. They are anecdotal. Use the reference sources and your organization’s policies for accounting treatment, tax, compliance, and final decisions.