Cost of Sales: definition and calculation
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We explain what is meant
We explain what is meant by cost of sales and how to calculate it. This refers to the expenses incurred by a business in order to sell its output.
These costs may include
- cost of the materials used in producing the output
- labour costs used to produce the output
- any other direct costs associated with the production of output
This output can be either goods or services.
The cost of sales is recorded in the statement of profit or loss.
In order to calculate Cost of Sales, we use a few relevant figures:
Cost of Sales = Opening inventory + Purchases - Closing inventory
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