How to Keep Track of the Cost of Goods Sold?

by Elise.

How to Keep Track of the Cost of Goods Sold?  - Discussion on Jewelry Making Journal

With jewelry making, how do you keep track of the cost of goods sold (COGS)?

You need to subtract this cost at the end of the year from your sales in order to get your actual net profit.

I understand what costs to include in the calculation.

What I don’t understand is how to keep track of COGS without entering each item as an inventory item into a software program.

That way the bag of 100 beads you buy for $1.00 can be tracked per bead… cause each jewelry piece contains different priced beads and quantities.

Please help.

Without keeping track of inventory, you can’t calculate the COGS, thus how would you figure out what your net profit of sales is at end of year??

Or is everyone guestimating this?

Elise

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Comments

  1. Hi Elise, thanks for asking! Have you tried using inventory software such as Jewelry Designer Manager? Or are you looking for a non-computerized way to keep track?

  2. Hello Rena,

    How would you keep track of inventory without using an inventory software? Would you happen to know any other suggestions for doing it without spending the money?

    Thanks!

  3. Nallery, thanks for asking!

    The best thing to do is to have a short session with a professional accountant who specializes in home businesses. Explain what you do, and ask the accountant to outline a simple system for tracking the things you need to track. That way you’re not wasting time tracking the wrong things, or coming up at the end of the year without the info you need. Depending on where you live and how much jewelry you sell, the whole accounting / record-keeping procedure may be surprisingly simple. Also where you live, there may be tax deadlines you need to know about. It’s worth it to get a professional account’s input, especially when you’re starting out.

    You may also want to see this post here on JMJ, but the accountant’s advice trumps anything that you read here on JMJ:

    The Business of Beads – Bookkeeping

    I hope this helps! 🙂

  4. Catherine Franz says:

    I am a CPA and was one long before computers; thus, there is a way to do it without computers. Even today I do mine this way and I love computers and apps. I found design manager too cumbersome and time consuming. I tried it for a whole year. Too many little items. Let me see if I can help. If you don’t understand something, email me and I’ll help you by phone to understand (free of course, since I’m semi-retired now.

    First, you need to keep track of what’s coming in. When I purchase supplies I separate tools and anything else from supplies that are placed into jewelry. Then in my drawers of supplies I store the pieces in their original bag if possible, if not I replace it with purchased small ziplock bags, along with some info (cut it off if it is small), such as vendor’s name, purchase date, and individual piece cost (which I calculate on the invoice and then transfer to the plastic). When I design something I write the pieces on an index card, afterwards I place it on my scanner and take a picture of it (reduce it if needed) and paste on the index card. I mark the cost, wholesale, and retail price.

    If the piece is ready to for display at a show, I keep the card (which has a description of the piece) with the item, if possible. It’s harder with earrings, so I keep those separate.

    Now for some items I have a general cost associated already calculated, such as for a necklace I know it takes a latch, some jump rings, I average those out and that’s what I add on the card. If copper I have a set price, brass, I have a set price, sterling a set price, etc. I keep an index card (large one) with all the what I have named “average cost card”. This works perfectly for an IRS auditor as well (hope that never happens). FYI, they know our chalenges, and it isn’t a “requirement” to use software (in IRS rules). The language reads to track to the best of our ability.

    At the end of the year, I have the cards to refer back on for jewelry that didn’t sell (which is an important number / ending inventory). From this any accountant can calculate the beginning and ending inventory and COGS if needed.

  5. Catherine Franz says:

    Oops, forgot this…

    Oh yes, when I sell the item, I have the card with the selling description on it. I mark the date sold, and write down some brief info on the buyer, like “gift for”, woman 40-50 (give ranges), etc. I record any info about the buyer as possible, I tell them what I’m doing as well and ask them a few generic questions I know they don’t mind answering. This way I have the info for when I’m designing new pieces especially if they are hot sellers.

    When the waiting buyers are fast and furious this can be cumbersome (which has happened to me lately), I now have a short (1/3 a page) form I ask them to complete and give them a small discount for doing so. 90% usually fill it out.

  6. Catherine Franz says:

    Oops, forgot this as well…

    I also track some info on my credit card processing app on my iPad; however, there’s much room for what I found I needed to build my business, thus, I returned to this method.

    The alternative was to purchase all the inventory tracking software and generate barcode stickers…when I researched this last year I decided I didn’t want to spend the $3K for all the stuff along with the hours of learning and getting the software started.

  7. The cost of goods COGS is the material cost of what you have created. When I price my goods to sell, this material cost is a % per cent of my total sell price. When calculating my sell price, this % is the same for all of my products I sell. So monthly I add the total sell price and calculate this % of this sell total. This is the material cost or COGS sold. You will keep postage and shipping separate if you have it. I have been doing this for 15 years now and the IRS has never questioned my reasoning.

  8. You might want to read a previous piece written some time ago:

    http://jewelrymakingjournal.com/the-kiss-theory/

    There are several comments with the writing.

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