Reviewed and Validated by: David Chen, CFA. This calculator adheres to GAAP and IFRS principles for calculating Cost of Goods Sold (COGS) / Cost of Revenue.
This Cost of Revenue (COR) calculator allows you to quickly determine the total direct costs attributable to the production of goods or services sold by your company. This metric is essential for calculating Gross Profit and understanding operational efficiency.
Cost of Revenue from Operations Calculator
Cost of Revenue from Operations Formula
The Cost of Revenue (COR), often synonymous with Cost of Goods Sold (COGS) for manufacturing/retail, is determined by the following accounting formula:
COR = OI + NP + DE - EI
Where:
Cost of Revenue = (Opening Inventory + Net Purchases + Direct Expenses) - Ending Inventory
Variables Explained
The calculation requires four primary inputs, representing the flow of goods through the inventory system:
- Opening Inventory (OI): The value of the inventory you held at the beginning of the accounting period. This value is carried over from the previous period’s ending inventory.
- Net Purchases (NP): The total cost of merchandise or materials purchased during the period, minus any returns, allowances, or discounts received.
- Direct Expenses (DE): Costs directly related to bringing the inventory into a salable condition, such as freight-in (transportation costs), import duties, and direct labor wages.
- Ending Inventory (EI): The value of inventory remaining at the end of the accounting period. This amount is subtracted because it represents unsold goods that will be expensed in a future period.
Related Financial Calculators
Explore other essential financial metrics to gain a complete picture of your company’s performance:
- Gross Profit Margin Calculator
- Inventory Turnover Ratio Tool
- Break-Even Analysis Tool
- Operating Expense Calculator
What is Cost of Revenue from Operations?
Cost of Revenue (COR) is a crucial line item on a company’s income statement. It represents the accumulated cost of acquiring or manufacturing the products or services that a company has sold during a specific period. For a manufacturing or retail business, COR is often labeled as Cost of Goods Sold (COGS) and primarily includes the cost of materials, direct labor, and manufacturing overhead.
However, for service-based businesses, COR is slightly different. It doesn’t involve physical inventory but includes the direct costs of delivering the service, such as the salaries and benefits of staff directly providing the service, hosting fees, and licensing costs. Regardless of the business type, a lower COR relative to Revenue leads to a higher Gross Profit, indicating more efficient operations.
Accurately calculating COR is vital for financial reporting, tax calculation, and making strategic pricing decisions. It is the first step in determining a company’s profitability before considering operating expenses like marketing and administration.
How to Calculate Cost of Revenue (Example)
Let’s walk through a simple example for a retail business using the required formula components:
- Determine Cost of Goods Available for Sale: Add the Opening Inventory ($50,000), Net Purchases ($120,000), and Direct Expenses ($30,000) to find the total cost of goods available for sale. $50,000 + $120,000 + $30,000 = $200,000.
- Identify Ending Inventory: The company performs a physical count and determines the Ending Inventory is valued at $40,000.
- Calculate Cost of Revenue: Subtract the Ending Inventory from the Cost of Goods Available for Sale. $200,000 – $40,000 = $160,000.
- Final Result: The Cost of Revenue (COR) for the period is $160,000.
Frequently Asked Questions (FAQ)
No. Cost of Revenue (or COGS) includes only *direct* costs of production/delivery (materials, direct labor). Operating Expenses (OpEx) include *indirect* costs like administrative salaries, rent, marketing, and R&D.
Ending Inventory represents goods that were acquired but not sold during the period. Since Cost of Revenue only tracks the cost of *sold* goods, the value of unsold goods (Ending Inventory) must be removed from the total cost of goods available for sale.
For product sales, this primarily includes freight-in (shipping to your warehouse), import duties, and any wages for workers directly involved in manufacturing or assembly. It excludes overhead like utility bills for the administrative office.
Mathematically, it is possible if Ending Inventory is unrealistically large compared to the sum of the other costs. However, in legitimate business accounting, COR must be zero or positive. A calculated negative result indicates a fundamental input error or a highly unusual financial situation.