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Cost of Goods Sold (COGS) Calculation Guide

This guide provides a comprehensive approach to calculating Cost of Goods Sold (COGS) using the Stateset API. It covers purchase order integration, work order processing, inventory management, and various costing methods.

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Table of Contents

  1. Setup
  2. Purchase Order Integration
  3. Work Order and BOM Processing
  4. Inventory Management
  5. COGS Calculation Methods
  6. Periodic COGS Calculation
  7. Reporting

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1. Setup

First, install the Stateset Node.js SDK:

npm install stateset-node

Then, initialize the Stateset client:

import { stateset } from 'stateset-node';

const client = stateset('YOUR_API_KEY');

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2. Purchase Order Integration

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2.1 Create Purchase Order

async function createPurchaseOrder(poData) {
  try {
    const created = await client.purchaseorder.create({
      purchase_order: {
        id: poData.id,
        number: poData.number,
        supplier: poData.supplier,
        order_date: poData.orderDate,
        expected_delivery_date: poData.expectedDeliveryDate,
        status: poData.status,
        total_amount: poData.totalAmount,
        currency: poData.currency,
        line_items: poData.lineItems
      }
    });
    return created;
  } catch (error) {
    console.error("Error creating purchase order:", error);
    throw error;
  }
}

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2.2 Retrieve and Update Purchase Orders

async function getPurchaseOrder(poNumber) {
  try {
    return await client.purchaseorder.retrieve(poNumber);
  } catch (error) {
    console.error("Error retrieving purchase order:", error);
    throw error;
  }
}

async function updatePurchaseOrder(poNumber, updateData) {
  try {
    return await client.purchaseorder.update(poNumber, updateData);
  } catch (error) {
    console.error("Error updating purchase order:", error);
    throw error;
  }
}

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2.3 Receive Purchase Order

async function receivePurchaseOrder(poNumber) {
  const po = await getPurchaseOrder(poNumber);
  
  for (const lineItem of po.line_items) {
    await updateInventory(lineItem.part_number, lineItem.quantity, lineItem.unit_cost);
  }

  await updatePurchaseOrder(poNumber, { status: 'RECEIVED', received_date: new Date() });
}

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3. Work Order and BOM Processing

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3.1 Retrieve Work Orders and BOMs

async function getWorkOrdersForPeriod(startDate, endDate) {
  return await client.workOrder.list({
    created_at: { gte: startDate, lte: endDate },
    status: 'COMPLETED'
  });
}

async function getBOMForWorkOrder(bomNumber) {
  return await client.billOfMaterials.retrieve(bomNumber);
}

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3.2 Calculate COGS for Work Order

async function calculateCOGSForWorkOrder(workOrder) {
  const bom = await getBOMForWorkOrder(workOrder.bill_of_materials_number);
  let totalCost = 0;

  for (const lineItem of bom.line_items) {
    const componentCost = await getComponentCost(lineItem.part_number);
    totalCost += componentCost * lineItem.quantity;
  }

  return {
    workOrderNumber: workOrder.number,
    totalCost: totalCost,
    quantityProduced: workOrder.line_items.reduce((sum, item) => sum + item.total_quantity, 0)
  };
}

async function getComponentCost(partNumber) {
  try {
    // Retrieve the latest inventory record for the part
    const latestInventory = await client.inventory.list({
      part_number: partNumber,
      limit: 1,
      sort: '-updated_at'
    });

    if (latestInventory.length === 0) {
      throw new Error(`No inventory found for part number: ${partNumber}`);
    }

    // Return the unit cost from the latest inventory record
    return latestInventory[0].unit_cost;
  } catch (error) {
    console.error(`Error getting component cost for part ${partNumber}:`, error);
    throw error;
  }

}

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4. Inventory Management

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4.1 Update Inventory

async function updateInventory(partNumber, quantity, unitCost) {

  try {
    // Create a new inventory record
    const newInventory = await client.inventory.create({
      part_number: partNumber,
      quantity: quantity,
      unit_cost: unitCost
    });

    console.log(`Inventory updated for part ${partNumber}:`, newInventory);
    return newInventory;
  } catch (error) {
    console.error(`Error updating inventory for part ${partNumber}:`, error);
    throw error;
  }


}

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4.2 Get Inventory Movements

async function getInventoryMovements(productId, startDate, endDate) {
  return await client.inventory.listMovements({
    product: productId,
    date: { gte: startDate, lte: endDate }
  });
}

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5. COGS Calculation Methods

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5.1 Average Cost Method

async function calculateAverageCost(productId, dateRange) {
  const purchases = await client.purchaseorder.list({ product: productId, date: dateRange });
  const inventory = await client.inventory.list({ product: productId, date: dateRange });
  const manufacturingCosts = await client.manufacturingorder.list({ product: productId, date: dateRange });

  const totalCost = purchases.reduce((sum, po) => sum + po.total_cost, 0) +
                    manufacturingCosts.reduce((sum, cost) => sum + cost.amount, 0);
  const totalQuantity = inventory.reduce((sum, inv) => sum + inv.quantity, 0);

  return totalCost / totalQuantity;
}

​
5.2 Weighted Average Cost Method

import Big from 'big.js';

function calculateWeightedAverageCost(previousInventory, purchases) {
  let totalCost = Big(previousInventory.cost).times(previousInventory.quantity);
  let totalQuantity = Big(previousInventory.quantity);

  for (const purchase of purchases) {
    totalCost = totalCost.plus(Big(purchase.cost).times(purchase.quantity));
    totalQuantity = totalQuantity.plus(purchase.quantity);
  }

  return totalQuantity.eq(0) ? Big(0) : totalCost.div(totalQuantity);
}

async function calculateWeightedAverageCOGS(productId, startDate, endDate) {
  const purchaseOrders = await getPurchaseOrders(productId, startDate, endDate);
  const inventoryMovements = await getInventoryMovements(productId, startDate, endDate);
  const manufacturingCosts = await getManufacturingCosts(productId, startDate, endDate);

  let inventory = { quantity: Big(0), cost: Big(0) };
  let cogs = Big(0);
  let totalPurchases = [];

  const allMovements = [
    ...purchaseOrders.map(po => ({ date: po.date, type: 'purchase', ...po })),
    ...inventoryMovements.map(mov => ({ date: mov.date, type: 'movement', ...mov })),
    ...manufacturingCosts.map(mc => ({ date: mc.date, type: 'manufacturing', ...mc }))
  ].sort((a, b) => new Date(a.date) - new Date(b.date));

  for (const movement of allMovements) {
    switch (movement.type) {
      case 'purchase':
      case 'manufacturing':
        totalPurchases.push({
          quantity: Big(movement.quantity),
          cost: Big(movement.type === 'purchase' ? movement.unitCost : movement.totalCost / movement.quantity)
        });
        break;
      case 'movement':
        if (movement.quantityChange > 0) {
          const newAverageCost = calculateWeightedAverageCost(inventory, totalPurchases);
          inventory.quantity = inventory.quantity.plus(movement.quantityChange);
          inventory.cost = newAverageCost;
          totalPurchases = [];
        } else {
          const quantitySold = Big(Math.abs(movement.quantityChange));
          cogs = cogs.plus(inventory.cost.times(quantitySold));
          inventory.quantity = inventory.quantity.minus(quantitySold);
        }
        break;
    }
  }

  return {
    cogs: cogs.toNumber(),
    endingInventory: {
      quantity: inventory.quantity.toNumber(),
      averageCost: inventory.cost.toNumber()
    }
  };
}

​
6. Periodic COGS Calculation

async function calculateMonthlyCOGS() {
  const date = new Date();
  const startDate = new Date(date.getFullYear(), date.getMonth(), 1);
  const endDate = new Date(date.getFullYear(), date.getMonth() + 1, 0);

  const workOrders = await getWorkOrdersForPeriod(startDate, endDate);
  let totalCOGS = 0;
  let totalQuantityProduced = 0;

  for (const workOrder of workOrders) {
    const workOrderCOGS = await calculateCOGSForWorkOrder(workOrder);
    totalCOGS += workOrderCOGS.totalCost;
    totalQuantityProduced += workOrderCOGS.quantityProduced;
  }

  const averageCOGS = totalCOGS / totalQuantityProduced;

  const previousPeriod = `${new Date(date.getFullYear(), date.getMonth() - 1, 1).getFullYear()}-${String(date.getMonth()).padStart(2, '0')}`;
  const previousCOGSData = await getPreviousCOGSData(previousPeriod);

  const cogsTrend = previousCOGSData 
    ? ((totalCOGS - previousCOGSData.totalCOGS) / previousCOGSData.totalCOGS) * 100 
    : 0;

  await storeCOGSData({
    period: `${startDate.getFullYear()}-${String(startDate.getMonth() + 1).padStart(2, '0')}`,
    totalCOGS,
    averageCOGS,
    quantityProduced: totalQuantityProduced,
    cogsTrend
  });
}

​
7. Reporting

async function generateCOGSReport(startDate, endDate) {
  const workOrders = await getWorkOrdersForPeriod(startDate, endDate);
  let totalCOGS = 0;
  let totalQuantityProduced = 0;
  const workOrderDetails = [];

  for (const workOrder of workOrders) {
    const workOrderCOGS = await calculateCOGSForWorkOrder(workOrder);
    totalCOGS += workOrderCOGS.totalCost;
    totalQuantityProduced += workOrderCOGS.quantityProduced;
    workOrderDetails.push({
      workOrderNumber: workOrder.number,
      part: workOrder.part,
      quantityProduced: workOrderCOGS.quantityProduced,
      totalCost: workOrderCOGS.totalCost,
      averageCost: workOrderCOGS.totalCost / workOrderCOGS.quantityProduced
    });
  }

  return {
    period: `${startDate.toISOString().split('T')[0]} to ${endDate.toISOString().split('T')[0]}`,
    totalCOGS,
    averageCOGS: totalCOGS / totalQuantityProduced,
    quantityProduced: totalQuantityProduced,
    workOrders: workOrderDetails
  };
}

For any questions or assistance, please contact our support team at support@stateset.io.

Manufacturing QuickstartInventory Quickstart