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      HomeProductsAccountingWhat is the Cost of Revenue and How to Calculate it?

      What is the Cost of Revenue and How to Calculate it?

      The cost of revenue is the total cost of producing and delivering a product or service to consumers. Information about COR that companies can find on the income statement is intended to represent the direct costs associated with the goods and services that the company provides.

      Online accounting software helps the process of calculating the Cost of Revenue and running business finances more comfortably.

      Key Takeaways

      • Cost of Revenue (COR) refers to the total expenses incurred in producing and delivering a product or service to consumers.
      • COGS typically includes costs directly related to production, while COR extends to additional expenses such as marketing and distribution, particularly relevant for service-oriented businesses.
      • Understanding the Cost of Revenue (COR) involves delving into various expense categories essential for financial insight. From direct material and labor to distribution, marketing, and other related costs, each component contributes to the holistic COR assessment.
      • COR can be calculated by summing up all the direct costs associated with producing and delivering a product or service.
      • Accounting software, like HashMicro’s, streamlines COR calculations by managing cash flow, generating financial statements, automating transactions, and facilitating various accounting tasks.
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        Difference between Cost of Revenue and Cost of Goods Sold

        differences
        Source: Freepik.com

        Usually, the terms Cost of Revenue and Cost of Goods Sold are used interchangeably. However, there is one fundamental difference that becomes the differentiator. Costs that relate to marketing and distribution are not a part of the account in the cost of goods sold.

        Therefore the main difference generally lies in their use. For example, producers tend to consider COGS, but on the other hand, service-oriented retailers focus on calculating the Cost of Revenue. Because they cannot record intangible items such as services on the income statement.

        Furthermore, COR does not include all costs incurred by the business to process the product to a sale condition. This element is more general and includes the cost of goods sold (COGS) and various other costs that allow sales activities to occur.

        download skema harga software erp
        download skema harga software erp

        Every industry has a different type of Cost of Revenue. The following are the types of costs for a product-oriented company

        1. Direct Material

        Product manufacturing requires a variety of components. The total cost of materials used in production is a Direct Material Cost. This may involve the cost of raw materials, consumables, and semi-finished components.

        2. Direct Labor

        Each company has a partly allocated workforce for production and partly for other departments such as administration, finance, and law. The employees involved in the production process will get wages.

        The wages are part of Direct Labor Costs. Furthermore, you can use HRIS software to simplify the administrative process of company employees through a centralized system, including payroll management.

        3. Direct Costs

        Apart from labor and materials, other costs can be attributed only to its production process. Hereafter, for example, the commission pays the purchase of raw materials or consumables.

        4. Distribution Costs

        These costs are for delivering the product to the customer, for example, shipping costs, storage costs, and related insurance costs.

        5. Marketing Costs

        Costs that are directly attributable to the product for a specific period should involve this component, such as advertising costs. You can also optimize your marketing efforts with a marketing automation system so that you can capture more targeted leads at an efficient cost.

        6. Other costs

        others

        Another cost is can directly attributed to the production and distribution of a product to customers. Unlike manufacturing companies, service-oriented companies do not have material-related expenses, and the main cost is labor. The following are the types of fees that are included in service-oriented companies:

        Direct Labors

        The main asset of a service-oriented company is its human resources. An example is the salary and money spent on recruiting the right people.

        Direct Costs

        Direct expenses for service-oriented enterprises include the cost of the equipment used to provide this service.

        Marketing Costs

        Generally, the marketing costs incurred by service-oriented and product-oriented companies are the same. Although the target audience may be different, other factors such as agency costs and advertising costs remain the same.

        Another cost

        Any additional costs that may be related directly to the production and distribution of the product to the customer.

        How to Calculate the Cost of Revenue?

        In 2020, manufacturing company A’s revenue is IDR 3,500,000,000, direct material costs IDR 95,000,000, labor costs IDR 170,000,000, research and development costs IDR 80,000,000, shipping and other handling costs IDR 40,000,000, costs others IDR 15,000,000.

        So, the calculation is as follows:

        What is the Cost of Revenue and How to Calculate it?
        So, the Cost of Revenue owned by company A is IDR 400,000,000

        Conclusion

        The cost of revenue is the total cost of producing and delivering a product or service to consumers. For those of you who have a business, then you must understand and know the inventory to expenses that are directly related to sensitive costs.

        There you also need to know the income your company receives. This is important because it can determine the progress that the company achieves, both profit and loss.

        In addition, there are several obstacles that you may encounter in calculating the cost of revenue, such as manual calculations that take a lot of time and energy, difficult data tracking, and not being integrated into a single system. Now you can solve these problems with the help of the best accounting software from HashMicro.

        Accounting Software from HashMicro is an online accounting system specifically designed to facilitate the work of accountants in recording business transactions which are usually done manually.

        Not only that, but the system also improves company efficiency with its benefits, such as avoiding calculation errors, automating various transactions, real-time data, etc. Nowadays, the cost of revenue calculations in various industries can run more simply using accounting software.

        HashMicro’s accounting software will automatically manage cash flow, financial statement creation, bank reconciliation, adjustment journals, invoicing, and more. Thus, Companies do not need to do manual calculations or confusion in categorizing components.

        Now, it is time for your company to turn to HashMicro accounting software to calculate the cost of revenue efficiently. Contact us now and get the free demo!

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        Anatha Ginting
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