## Average Cost

*Average Cost* is the average price you’ve paid for one unit of product. Since the purchase prices may differ from one batch to another you need to know the Average Cost to calculate COGS.

Kladana calculations are based on FIFO (First In, First Out) costing method which assumes the earlier product is purchased — the earlier it will be sold. The Average Cost is calculated by the formula:

**Example**

You’ve purchased 100 pencils and paid $10 for them. Which means each pencil cost you $0.10

Then you’ve purchased 100 pencils again but from another supplier and paid $15. This time each pencil cost you $0.15

In general, you’ve paid $25 for 200 pencils. The average pencil cost is $0.13

If you sell a product with zero quantity in stock, its average cost will be zero. If the majority of sales were made with zero quantity in stock, the average cost will be lower than the purchase price.

## Gross Profit

*Gross Profit *is the amount left from total sales revenues after deducting the COGS. If there were no refunds during the accounting period, Gross Profit is calculated by the formula:

If there were refunds, the formula to calculate Gross Profit modifies the following way:

Where:

- Gross Revenue = Gross Sales – Total Refunds
- Total COGS = Cost of goods sold – Cost of goods returned
- Total Qty = Quantity of sold units – Quantity of returned units

## Profit Margin

Profit Margin is the product profitability indicator shows the ratio of profit to the cost of goods which is calculated by the formula:

Where:

- Gross Revenue = Gross Sales – Total Refunds
- Total Cost = Cost of goods sold + Fees – Cost of goods returned