Cost of Services Definition and Example
Cost of Services Definition – Costs directly associated with delivering a service.
Well, when it comes to service industry, then there is no cost of goods sold. COGS is used only for business which rely on selling goods or products. In simple words, products that have physical existence. Therefore the term used to define the cost for delivering goods or services is known as cost of services.
It appears on the Income Statement of the company from where all the direct costs associated with the services are subtracted. This does not include any indirect cost.
Example of Cost of Services
Look at this example to understand cost of services example more clearly. Myntra sells various items on its e – commerce portal. Suppose a customer orders a Deo of ‘Engage’. It is charging 50 rupees for delivering it to the customer home. So this money is also a part of cost of services.
Related Financial Terms of Cost of Services
- Gross Profit Definition – Meaning, Example and Importance
- Operating Expenses Definition – Meaning and Examples
Items Includes in Cost of Service
Raw Materials – In case of a service business, there is nothing like raw material. However, if business is selling some product then there is raw material.
Labor Cost – The cost of labor is a part of cost of service. Delivering of service to the customers involve people. The payment made to these people is known as direct labor cost or cost of labor.
Shipping costs – Let’s assume you are owner of an e – commerce web portal which sells clothes. A customer has given an order of 4 Levis jeans. For shipping the order, you have to spent Rs. 500. So this charge will also be part of cost of services.
In addition to the above mentioned items, sales commission is also included in the cost of services.
Items that are not Included in Cost of Service
- Salaries paid to the employees
- Rent paid or telephone charges, etc.