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Trading and Investment Terms

Cost of Revenue

The cost of revenue can be defined as the total expense of assembling as well as delivering a good or service to customers.

 

Cost of revenue information can be found in a organization's income statement and is intended to reflect the direct expenses related with the products as well as services the organization provides.

 

The service business usually prefers using the cost of revenue metric since it is an increasingly comprehensive record of the various expenses related with selling a product or service.

 

Lets assume ABC Inc. sells electronics items and provides services to fix electronic gear.

 

ABC Inc. reported total revenue of Rs. 100 lakhs, COGS of Rs. 15 lakhs, and cost of services sold of Rs. 7 lakhs.

 

The company had direct labor costs of Rs. 5 lakhs, marketing expenses of Rs. 1 lakhs, and direct overhead costs of Rs. 3 lakhs. Additionally, the company paid Rs. 10 lakhs to its management and had rental costs of Rs. 8 lakhs.

 

From the information provided, the company's cost of revenue is Rs. 31 lakhs for the fiscal period.

 

The Rs. 10 lakhs paid to its management and the rental costs of Rs. 8 lakhs are indirect costs, which are not included in the cost of revenue.

 

Since the company had total revenue of Rs. 100 lakhs, ABC Inc. has a cost of revenue margin of Rs. 100 lakhs - Rs. 31 lakhs = Rs. 69 lakhs.

 

Moreover, the company has a cost of revenue to total revenue percentage of 31%, or Rs. 31 lakhs divided by Rs. 100 lakhs.

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