South Africa Cost of Goods Sold Calculator
Calculate your COGS using the inventory method: Beginning Inventory + Purchases - Ending Inventory.
COGS includes all direct costs of producing goods: raw materials, direct labour, and manufacturing overhead.
In South Africa, COGS is a key deduction when calculating taxable income for SARS purposes.
Inventory valuation methods (FIFO, weighted average) affect your COGS and therefore your tax liability.
A higher inventory turnover ratio generally indicates more efficient operations and better cash flow.
Work out how much it really costs to make or buy the products you sell
What is Cost of Goods Sold (COGS)?
COGS is the total direct cost of producing or buying the goods your business sells. It includes raw materials, direct labour, and manufacturing overhead. For a bakery selling bread at R25 per loaf, COGS might include R8 of flour, R3 of other ingredients, and R4 of direct labour — totalling R15 per loaf. Your gross profit is R10 per loaf.
Why does COGS matter for tax in South Africa?
COGS is deducted from your revenue to calculate gross profit, which affects your taxable income. The higher your COGS, the lower your taxable profit, and the less tax you pay. SARS allows you to deduct all legitimate production costs. Keeping accurate records of your COGS can save you thousands in tax each year.
What is included in COGS?
COGS includes the purchase price of goods for resale, raw materials, direct labour (wages of workers who make products), freight and delivery costs to get materials to your premises, and manufacturing supplies. It does not include selling expenses, office rent, or marketing costs — those are operating expenses, not COGS.
How do I calculate COGS?
The formula is: Opening Stock + Purchases - Closing Stock = COGS. If you started the month with R100,000 of stock, bought R250,000 more, and ended with R120,000, your COGS is R230,000. This is the cost of goods that were actually sold during the period, not what you purchased.
What stock valuation method should I use?
South African businesses typically use FIFO (First In, First Out) or weighted average cost. FIFO assumes you sell older stock first, which gives a lower COGS when prices are rising. Weighted average smooths out price fluctuations. SARS accepts both methods, but you must apply your chosen method consistently from year to year.
How does VAT affect COGS?
If you are VAT-registered, exclude VAT from your COGS because you can claim input VAT back from SARS. Your COGS should reflect the VAT-exclusive price of goods. If you are not VAT-registered (turnover below R1 million), include VAT in your COGS because you cannot claim it back. This makes your actual costs 15% higher.
What is a good COGS ratio?
COGS as a percentage of revenue varies by industry. Retail businesses in South Africa typically have COGS of 60-75% of revenue. Manufacturing might be 40-60%. Service businesses have very low COGS (often under 20%). If your COGS ratio is higher than industry averages, look for ways to negotiate better supplier prices or reduce waste.
SARS-Aligned: Based on 2025 SARS rates and thresholds. For personal advice, speak to a qualified tax practitioner.
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Disclaimer: This calculator provides estimates based on current HMRC rates and thresholds for the 2025/26 tax year. It does not constitute professional tax, financial, or legal advice. Your actual liability may differ depending on your individual circumstances. Always consult a qualified accountant or tax adviser before making financial decisions. Read our terms