The Cost of Goods Sold Formula Managerial Accounting is an important tool for businesses to be able to identify their true costs. By keeping a firm grasp on the value of inventory items and the cost of producing them, companies can ensure that the most effective and accurate financial decisions are being made at all times. In essence, this formula helps managers understand how much it costs to bring a product from conception to sale. The equation itself is relatively simple and straightforward: Cost of Goods Sold = Beginning Inventory + Purchases – Ending Inventory. By tracking each step in the process, companies can gain a better understanding of their financial health and make more informed choices as they move forward.