how does inventory affect cogs 
in theory cogs should include the cost of all inventory that was sold during the accounting period in practice however companies often don t know exactly which units of inventory were sold instead they rely on accounting methods such as the first in first out fifo and last in first out lifo rules to estimate what value of inventory was actually sold in the period if the inventory value included in cogs is relatively high then this will place downward pressure on the company s gross profit for this reason companies sometimes choose accounting methods that will produce a lower cogs figure in an attempt to boost their reported profitability the bottom linecost of goods sold is the direct cost of producing a good which includes the cost of the materials and labor used to create the good cogs directly impacts a company s profits as cogs is subtracted from revenue companies must manage their cogs to ensure higher profits if a company can reduce its cogs through better deals with suppliers or through more efficiency in the production process it can be more profitable 