What goes in cost of sales, and what does not
Cost of sales is the cost of what you sold, goods or work. Sort a bike shop's costs, find the cost of its repairs and see why the choice must not change.
In this room: 3 tasks, 7 questions
- The cost of what was sold2 questions. You sort items into the right place and pick the right answer.
- Cost of sales for a service3 questions. You work out a figure.
- The same choice every year2 questions. You work out a figure and pick the right answer.
Cost of sales is the cost of what the business sold in the period. It is also called cost of goods sold, or direct costs.
For goods, it is what they cost to buy or make. For work done for a customer, it is the materials used on the job and anyone paid to do that job.
Every other cost keeps the business running, whatever is sold. It is an expense, shown below gross profit.
Priya's shop also repairs bikes. She pays a freelance mechanic £45 for each repair, and the parts fitted are charged to the customer.
Answer the questions below
1 more question follows in this task.
A service, such as a repair, has no goods on a shelf. Its cost of sales is the cost of doing the work that was paid for.
A sole trader who does all the work alone may have little cost of sales. The owner's own time is not a cost: what the owner takes out is drawings.
| Item | £ |
|---|---|
| Repair income | 50,000.00 |
| Parts fitted in repairs | 8,500.00 |
| Freelance mechanic | 16,000.00 |
| Electricity for the workshop | 1,200.00 |
Answer the questions below
2 more questions follow in this task.
Moving a cost between cost of sales and expenses changes gross profit. It does not change net profit, because the cost is still taken off, only lower down.
So decide where each kind of cost goes and keep to it. If the choice changes, this year's gross margin cannot be compared with last year's.
Answer the questions below
1 more question follows in this task.