What is cost of Sales?

The cost of sales is the accumulated total of all costs used to create a product or service, which has been sold. The term is most commonly used by retailers. A manufacturer is more likely to use the term cost of goods sold. The cost of sales line item appears near the top of the income statement, as a subtraction from net sales. The result of this calculation is the gross margin earned by the reporting entity.

The various costs of sales fall into the general sub-categories of direct labor, materials, and overhead and may also be considered to include the cost of commissions associated with a sale. The cost of sales is calculated as beginning inventory + purchases - ending inventory. A retailer or distributor might instead use a "merchandise" classification for the goods that it sells.

The cost of sales is a key part of the performance metrics of a company, since it measures the ability of an entity to design, source, and manufacture goods at a reasonable cost.

The cost of sales is the accumulated total of all costs used to create a product or service, which has been sold. The term is most commonly used by retailers. A manufacturer is more likely to use the term cost of goods sold. The cost of sales line item appears near the top of the income statement, as a subtraction from net sales. The result of this calculation is the gross margin earned by the reporting entity.

Cost of Sales is the cost of the materials used in creating the good along with the direct labor costs used to produce the good. Indirect expenses such as distribution costs and sales force costs are not included cost of sales.