Cost of Revenue
What is Cost of Revenue
The cost of revenue, also known as cost of goods sold (COGS), is a company's direct costs associated with producing and selling its products or services. It includes the costs of raw materials, labor, and manufacturing overhead, as well as any other costs that are directly related to the production and sale of the company's products or services.
The cost of revenue is an important measure for companies, as it helps to determine the gross profit of a company, which is calculated by subtracting the cost of revenue from the company's total revenue. The gross profit represents the amount of revenue that is left over after the direct costs of producing and selling the products or services have been accounted for, and it is a key indicator of the company's profitability.
To calculate the cost of revenue, a company must first determine the cost of each unit of its products or services. This may involve tracking the cost of raw materials, labor, and other direct costs for each unit. The company can then multiply the cost per unit by the number of units sold to arrive at the total cost of revenue for the period.
In addition to tracking the cost of revenue on a per-unit basis, companies may also need to account for changes in inventory levels or other factors that can affect the cost of revenue over time. This may involve using inventory valuation methods such as FIFO (first in, first out) or LIFO (last in, first out) to determine the cost of goods sold.