What is the cost of sales?

The denomination, cost of sales, is used to refer to the total amount of production costs of each and every one of the goods or products sold. In this sense, it is important to bear in mind that both direct and indirect costs are included in the above. In addition, the cost of sales can be the same or different, according to the specifications of national regulations, in accounting and tax terms.

How to calculate the cost of sales?

From an accounting point of view, the cost of sales formula is very simple:

It is the result of adding to the inventory value at the beginning of the annual fiscal year, all the expenses incurred for the production, as well as the purchases of materials made, at the prices in which they have been made. Logically, the result will give us the cost of the goods sold, but also of the inventoried ones. Therefore, to determine only the cost of sales in a financial year, from the previous amount, the value of the final inventory of the goods must be subtracted.

Taking into account the above, it is important to know that the cost of sales does not have to be uniform in terms of its calculation method in all companies. This does not imply that the cost of sales formula does not apply. However, to determine the aforementioned cost, the inventory valuation criteria are involved. And, as is known, depending on whether one or the other is used, the inventory value at the beginning of the year and at the end, are different.

The most commonly used criteria for the valuation of inventories or merchandise are the FIFO., “first in first out”, el LIFO, "Last in first out", and the weighted average price. Finally, indicate that the cost of sales takes into account, in addition to the costs of products and raw materials, transportation or shipping costs, warehouse costs, direct costs, including labor and general manufacturing, and depreciation.

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