Five issues related to the cost of sales
http://www.accountingfacts.net/articles/7029/1/Five-issues-related-to-the-cost-of-sales/Page1.html
Andrew Junkuhn
You are going to need software to manage the process of cash flow forecasts, sales forecasts and expense budgets.
Google for budgeting software or visit http://www.1234cast.com where you'll find software and more articles on cash flow forecasting and budgeting. By Andrew Junkuhn
Published on 03/25/2010
The cost of sales is a breakdown of expenditure of all the direct financial processes involved in the manufacturing of a product. This means that eg distribution or sales costs, are not directly affiliated with cost of goods sold.
Five issues related to the cost of sales
One area where cost of sales focuses is on the cost of raw materials that the company finds necessary to be able to complete a product for selling and bringing in rolling revenue to a company.
While working out the cost of sales, there are various factors that need to be taken into account.
The raw materials required to begin the process. There will be labour costs involved. This would also need to have a provisional section for potential overtimes, or contract payments etc. Your company is making a product and it may be the best product available in its field, but you would still need to advertise. This may come in forms of having a company representative, internal sales staff or possibly using an advertising agency if you want to be ultra dynamic.
The cost of sales process is a major step in the budgeting process, because this can provide a guideline of what your company's profit is going to be.
Just note that the cost of sales is the cost of direct fabrication. Other expenses such as transport would usually fall under an alternate category altogether.
The cost of sales is used to determine what the company's profits are going to be.
The way to work out cost of sales goes something like this:
Stock brought forward
PLUS
Cost of goods purchased
MINUS
Stock carried forward
REMAINDER
Cost of goods sold
EQUAL TO
Gross Profit
Once you have your gross profit amount- you will then subtract other indirect expenses such as rent, travel or phones etc.
Once you have done this then you have reached the predicted net profit amount.
Depending on the particular type of company that you have, would depend on the breakdown of you cost of sales budget.
For example, if you are a distribution company, you would then need to look at the cost of all items that your company has purchased or will be purchasing for resale. You would put your mark up on the product and it is all ready to resell.
For a manufacturing company you would then need to create the budget for the actual fabrication of the product that would be up for sale on completion.
Some companies break the budgeting areas down into various sectors. You may then only need to do a budget for parts that may be used in the fabrication of a product.
You would really need to look and firmly be aware, through each process, which calculation would suit your company.
While working out the cost of sales, there are various factors that need to be taken into account.
The raw materials required to begin the process. There will be labour costs involved. This would also need to have a provisional section for potential overtimes, or contract payments etc. Your company is making a product and it may be the best product available in its field, but you would still need to advertise. This may come in forms of having a company representative, internal sales staff or possibly using an advertising agency if you want to be ultra dynamic.
The cost of sales process is a major step in the budgeting process, because this can provide a guideline of what your company's profit is going to be.
Just note that the cost of sales is the cost of direct fabrication. Other expenses such as transport would usually fall under an alternate category altogether.
The cost of sales is used to determine what the company's profits are going to be.
The way to work out cost of sales goes something like this:
Stock brought forward
PLUS
Cost of goods purchased
MINUS
Stock carried forward
REMAINDER
Cost of goods sold
EQUAL TO
Gross Profit
Once you have your gross profit amount- you will then subtract other indirect expenses such as rent, travel or phones etc.
Once you have done this then you have reached the predicted net profit amount.
Depending on the particular type of company that you have, would depend on the breakdown of you cost of sales budget.
For example, if you are a distribution company, you would then need to look at the cost of all items that your company has purchased or will be purchasing for resale. You would put your mark up on the product and it is all ready to resell.
For a manufacturing company you would then need to create the budget for the actual fabrication of the product that would be up for sale on completion.
Some companies break the budgeting areas down into various sectors. You may then only need to do a budget for parts that may be used in the fabrication of a product.
You would really need to look and firmly be aware, through each process, which calculation would suit your company.