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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.

Difference between Cost of Revenue and Cost of Goods Sold

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 related to marketing and distribution are not taken into account in the cost of goods sold. 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. This is because they cannot record intangible items such as services on the income statement.

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.

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

Direct Material

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

Direct Labor

Each company has a partly allocated workforce for production and partly for other departments such as administration, finance, law. Wages paid to employees who are directly involved in the production process are included in Direct Labor Costs.

Direct Costs

Apart from labor and materials, there are other costs incurred by the company, which can be attributed only to its production process. One example is the commission paid on the purchase of raw materials or consumables.

Distribution Costs

These are the costs involved in delivering the product to the customer, such as shipping costs, storage costs, and related insurance costs.

Marketing Costs

Costs that are directly attributable to the product for a specific period should be included in this component, such as advertising costs.

Other costs

It is another cost that can be 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 included in service-oriented companies:

Direct Labors

The main asset of a service-oriented company is its human resources. An example is a 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

Nowadays, the calculation of the Cost of Revenue in various industries can be run more merely using accounting software. Companies do not need to perform manual calculations or confusion in categorizing components.

Related articles:

COGS Calculation for Manufacturers

How to Calculate PPV in a Manufacturing System

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Anatha Ginting
A full-time Content Writer at HashMicro. Strive to develop my writing skill and knowledge in terms of business, technology, and other relevant issues.

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