The landscaping business provides lawn services to clients to keep their yards groomed. The services of landscaping also include planting of flowers, trees and shrubs. Landscapers are the workers who do landscaping services.
They know to plan flowerbeds and gardens to raise the value of a property. When a customer hires a landscaping company, he has to pay for manual labour as well as landscapers working knowledge of plants and flowers that would increase the property value.
There are various types of landscaping business as well. They can engage themselves on residential works as working on lawns or even doing private works for commercial businesses. The public parks and golf courses are the big source of revenue for landscaping business.
A rare breed of landscaping business would be that of crews who mow the sides of roads and plant flowers and maintain those premises.
Professional landscaping businesses do their jobs quickly and move into another. These landscapers own professional weed trimmers, chainsaws, tillers and various high-quality tools. The large landscaping business would have proper crews with designated leaders for the site with responsibility assigned.
Cost of goods sold for a landscaping business
The framework for landscaping business has been now discussed, we step next to what constitutes cost of goods sold for landscaping business. Cost of goods sold is the carrying value of goods sold during a particular period.
As the landscaping business models are based on service models, COGS also equate to cost of services rendered. Landscaping for residential applications includes mowing the lawn; weed trimming; planting flowers, shrubs and trees; and trimming hedges and trees.
A good landscaper creates hedges and adjusts the height to elevate the attractiveness of the property. Landscaping businesses will often fertilize plants and grounds as well. However, the service still requires some sort of supplies. The various expenses in providing cleaning service are as follows:
A) Supplies to assist landscaping services
These are the products that would be needed to perform landscaping services. This would include the following:
Cost of regular shovel repairs
Cost of bags and trash bags
Cost of plants and flowers
Cost of disinfectant chemicals
Cost of spray bottles to water plants in small pts
Cost of floor cleaner in the garden
Cost of stain remover
Cost of wood cleaner
All the above supplies can be effectively categorized into essential gardening landscaping and lawn landscaping services. There are commercial landscaping services but not much of supplies are used there which can be included in cost of goods sold.
All the supplies made in commercial landscaping are of high expenditures and the equipment used therein are also heavy fixed assets. The professional expertise of landscaper along with is essential for the success of a good cleaning company. All the above costs are also considered as the cost of supplies or cost of direct materials for cleaning business.
B) Cost of labour
Even if the landscaper is providing pruning brush services or installing a deck, the client will need to know how much the cost will be upfront. Hence, the landscaping business has to make an elaborate decision on how much it is going to charge its clients for certain jobs. They may use various software packages like CLIP and landpro developed for landscaping business.
Cost of labour is a major component of landscaping service. This is what the landscaper would provide on the basis of professional expertise. Cost of labour is computed by charging hourly rates for actual hours worked. The first step in landscaping business is to make a formal visit to client premises.
The company shall estimate the size of the premises to be serviced and the type of landscaping service they would need and the contract period. The amount of time and the number of workers needed to work on-premises also need to be estimated.
The number of hours will vary on the type of contract the client wants. The final step would be to establish hourly rates. This will depend again on the type of services required by the client. To decide the cost of labour in providing services, the company has to also consider industry practices along with regulations applicable to them.
A barbershop business model is a framework for how a barbershop generates revenue. It includes the different sources of business that is services and retail sales, a barbershop has, value the barbershop delivers like the colouring of hair, pricing the value and the type of customer who pays for it. Understanding the business model is vital to understand the cost model which we discuss later on.
Various industry reports state that barbershops primary income stream is service revenue. For the average US hair barbershop this accounts for about 92% of the income generated.
A small part of income is generated from retail sales i.e. 8%. However, successful retail barbershops have a high concentration on retail sales as it has a higher margin. Various models that barbershops apply are as follows:
The Fee-For-Service Salon Revenue Model: This is what the traditional salon revenue model is based on.
The Salon Subscription Model: A pre-determined fee is charged for a contracted period rather than per transaction. Under this model, subscription models that are used by newspapers, televisions, etc are applied.
The Salon Advertising Revenue Model: The advertising model is used by salon is that of media companies. The salon charges other business for advertising space in their channels
The Production Revenue Model: This is also a traditional model where barbershop creates value by targeting salesmanship through their premises. They create value by manufacturing and selling finished goods.
Cost of Goods sold for Barbershop
Now that we have understood the basic model of barbershop, we now enter into discussing cost components as well. Cost of goods sold is the carrying value of goods sold during a particular period.
As the barbershops are based on product and service model, COGS also equate to cost of products and services sold or rendered.
The barbershop that earns the highest sells more products than its services. The products come with high margins. Further, the services barbershop provides also use most of the supplies of the shop. The various costs for barbershop forming COGS are as follows:
A) Supplies to assist hair cutting
These are the products that would be needed to perform salon or haircutting services. This would include the following :
Cost of cotton bands
Cost of bags and trash bags
Cost of razors ,blades,etc
Cost of disinfectant wipes
Cost of spray bottles for sanitization purposes
Cost of applicator bottles and spa jars
Cost of essential oils, shampoos, etc
Cost of gloves
Cost of various types of bleaches
Cost of polishes
Cost of soap, essential perfumes, fragrance powder, etc
All the above supplies can be effectively categorized into essential haircutting supplies and special requirement for clients for various events like interviews, marriage, etc.
The right products in the barbershop are required for its success. All the above costs are also considered as cost of supplies or cost of direct materials for haircutting and other services of barbershop.
B) Cost of labor
This is major component of barbershop. This is the type of service that workers of barbershop would provide on the basis of professional expertise. Cost of labor is computed by charging hourly rates for actual hours worked.
The first step in barbershop for computing labor cost is to make estimate of how much time its staff require to complete the service. The staff can be really slow or the one who adds most experience to the simple jobs of manicure, pedicure and haircutting.
The barbershop shall also estimate how much products the worker is able to provide rather than simply the number of hours worked. A lot of variables come into play to estimate the cost of labor. This is the first thing barbershop should do and standardize the cost of providing service on a whole.
The final step would be to establish hourly rates. This will depend again on the type of services required by the client and the amount of satisfaction they get
What should the cost of service include?
The barbershop can alter or modify services that are prepared to provide for customers. This can be mentioned in the brochure of the company. This can be attached on big board in the office or simple menu can also be made.
Further, they can use this tactically for a checklist for training employees. The decision to add certain costs would be taken by the senior management of the company.
Other receivables generally come with headings “Trade receivables and others” in the financial statement of large listed public companies. Other receivables are disclosed under the headings “Current Assets”.
These are residual trade or non-Trade receivables that have not been specified by the company or regulations or do not meet the criteria of being classified separately. They are referred to as they are uncommon and insignificant like the major accounts of Current assets as Trade receivables, accounts payable, income taxes payable.
Other receivables are listed under the assets side of the firm’s balance sheet. These come below the headings of Trade receivables. Other receivables are characterized as uncommon or insignificant. Other receivables are rarely recorded in the financial statements, hence, the net balance in Other receivables account is typically small.
Example
The company is running an account of petty expenses. It has paid in advance to coffee shop for 15 days and the coffee shop will reduce all the expenses against the advance.
Even then, at the end of the month, the advances of $ 140 still remain. The company has to show this amount in its balance sheet. It has to show this receivable in “Other receivables”
Understanding Other receivables
Other receivables consist of temporary accounts which even do not repeat every year. Depending on the industry and industry practices, the explanations on Other receivables can be found on the quarterly and annual filings by the company.
To simplify miscellaneous trade and non-Trade receivables of the large sized companies, the term “Other receivables” have been established to represent all the small items of trade and non-Trade receivables. The major components of assets are either long term assets or Current assets.
Long term assets are non-current assets such as plant and machinery, buildings, land, long term investments. These assets have span of more than 1 year and are payable in more than 1 year. On the other hand, Current assets are short term assets which have to be paid within 12 months.
They are the assets that can be easily paid with liquidating current assets in the process of daily operations. Current assets include Trade receivables, accounts payable, income taxes payable. Current assets that are not specified or uncommon won’t be categorized under Current assets.
Instead, they will be thrown into the residual heading of Other receivables. Instead, these assets will be taken to a generic “other” category and would be recognized as Other receivables on the balance sheet.
Examples of Other receivables shall include:
Things to be noted
For publicly listed companies, they have to give clear breakdown of Other receivables in their quarterly and annual filings. However, they represent no so significant amount of money. Hence, the companies may choose to ignore showing Other receivables separately.
However, Other receivables would be placed under footnotes to financial statements. Rarely explanations are needed for Other receivables. However, when needed, the company shall offer the explanations in notes to accounts.
Other receivables are generally assumed to be disposed of within a accounting cycle that would be 12 months. The nature of each Other receivables needs to be determined. It is important for the management to know about the liquidity of Other receivables.
If accounts in Other receivables in a past year becomes material in the current year, it may need to be disclosed into major defined Current assets accounts. This would slowly create insightful information in the minds of investors.
Formula
There is no formula for computing the Other receivables. Either the small amounts will aggregate to form Other receivables or there won’t be any Other receivables.
Other receivables = Petty expenses receivables + Advance weekly wages to cleaning staff + Advance supplies
Let’s take the example of Sinra Ltd that had recently filed its annual financial statements. The following details about Current assets were available
Petty expenses receivables $ 45
Advance weekly wages to cleaning staff $ 105
Advance supplies $ 95
The Calculation of Other receivables can be done as :
Petty expenses receivables
45
Advance weekly wages to cleaning staff
105
Advance supplies
95
Other receivables
245
When to disclose Other receivables separately?
The probability of disclosing Other receivables separately stands zero. The large listed companies generally go by the heading “Trade receivables and Other” where Other receivables are incorporated.
However, circumstances change abruptly and management hast to evaluate this question carefully before any disclosure is being made. There are very outside chances that other receivables will become any significant.
Merchandising companies buy goods and resell them at a higher price than the purchase price. Two types of merchandising company exist i.e. retail merchandising and wholesale merchandising.
The retail merchandising company sells products directly to masses i.e. to direct consumers of the product and the last in the chain of the product purchase to sales link.
On the other hand, the wholesale company buys the merchandises in bulk and sells them to retailers in less of volume. The volume in the wholesale merchandising company is very high than the retail merchandising company.
What are the merchandising activities?
There are many common activities despite structural differences between both retail and wholesale merchandising business. Both of these structures purchase and sell the same product and are engaged in the operating cycle.
The event of purchase means that a customer would buy in exchange for cash The retailer business is the customer of wholesale merchandising business. Further, the size of business would also decide various other factors of the business.
The activity of selling would be to buy goods for cash. Both the retail and wholesale companies are in the operating cycle. That means to purchase for retail business becomes the sale of wholesale business. This is how both these business complements each other.
The nature of merchandising business is trading and not manufacturing. These businesses do not make the products but rather help in the distribution chain of the product. Like all the companies, these companies would also have cost of goods sold statement.
Cost of goods sold statement preparation for merchandising company is easier than to prepare for a manufacturing company.
Cost of Goods Sold in Merchandising company
Cost of goods sold needs to be deducted from sales in order to arrive at gross profit. It depicts the cost incurred for goods sold during the period. Cost of goods sold is the sum of the cost of all the products of the merchandising company that were sold during the accounting period.
If the merchandising company use a perpetual system of inventory, cost of goods sold would be calculated at every point of sales being made.
Under the periodic inventory system used by company, cost of goods sold needs to be computed. Under this method, all the goods purchased are entered in the purchases account and not inventory account.
No adjustment is required to inventory when sales are being made and likewise to cost of goods sold unlike in a perpetual system of inventory. Under this method, at the end of the year, one must look how much inventory was purchased and should count all the inventory physically and compute the cost of goods sold.
After adding opening inventory to the cost of purchases, cost of goods available for sale is obtained. The number of goods available for sale would equal to the cost of goods sold if all the goods on hand were sold with zero inventory on hand. In other words, available inventory is subtracted from goods available for sale to compute the cost of goods sold.
Computation of cost of good sold under periodic inventory system:
Opening Inventory
XXX
Add: Purchases
X
Goods available for sale
XXX
Less: Closing inventory
X
Cost of goods sold
XXX
Let’s take an example of merchandising company and compute cost of goods sold.
Sinra Inc sells ball pens to office supply stores and other retailers around the world. On the date of April 1, the company’s inventory was $101,000. During the year, the company purchased $1095,000 worth of ball pens.
A physical count of the inventory on March 31 revealed that there was $73,000 worth of pencils remaining. Compute the cost of goods sold for the year.
Opening Inventory
101,000
Add: Purchases
1095,000
Goods available for sale
1196,000
Less: Closing inventory
(73,000)
Cost of goods sold
1123,000
Retail merchandising shops should take the inventory count at year-end if they are using periodic inventory. The more the count of inventory, it is better for the business as well. This is because the perpetual system updates inventory constantly, but the periodic system doesn’t.
Should consignment goods to be included in inventory for cost of goods sold?
The answer would be negative. The consignment is an arrangement with a third party who acts as middlemen between seller and customer and facilitates the sale of goods. The merchandiser generally acts as middlemen as they would sell these goods directly to retailers or the final consumers.
The merchandiser would not have any title to goods. To make consignment sale, the merchandiser pacts an agreement to receive the commission or some percentage of sales proceeds.
Cleaning companies offer cleaning services. The range of services would differ as they offer the services in the niche section. The services would go to differ as industrial cleaning, office cleaning and home cleaning services. There are routine clean vs specialized cleaning services too.
Regular cleaning is what routine cleaning is meant for. In the United States, these are also called janitorial services for residential and office purpose of cleaning.
Types of cleaning services:
The cleaning services based on time taken by the janitor are of two kinds as :
1) Routine Cleaning
This is daily cleaning service. It consists of various activities like thorough cleaning of kitchens and bathrooms, vacuuming throughout the house, mopping and dusting all surfaces.
2) Specialized cleaning
These are also sometimes called deep cleaning. It is good for clients moving in to the house, preparing for holidays or planning an event. This is costly with respect to routine cleaning.
Various other types of commercial cleaning are as follows:
Office cleaning: These are related to routine cleaning of all the office floors.
Pest Control: Rarely, the pests become increasingly worrisome for the inhabitant of house, office or even factory. Then the pest controls are necessary for the peaceful mind.
Industrial cleaning: These are niche segments where cleaning through chemical is done. These require meticulous skills and training along with equipment.
Cost of goods sold for a cleaning company
Now that we have understood the basic model of cleaning companies, we now enter into discussing cost components as well. Cost of goods sold is the carrying value of goods sold during a particular period.
As the cleaning companies are based on service models, COGS also equates to the cost of services rendered. However, the service still requires some sort of supplies. The various expenses in providing cleaning service are as follows:
A. Supplies to assist cleaning
These are the products that would be needed to perform cleaning services. This would include the following :
Cost of paper products and dispensers
Cost of bags and trash bags
Cost of mops,brooms, brushes, etc
Cost of disinfectant wipes
Cost of spray bottles to store homemade products and all purpose cleaners you need to mix with water.
Cost of dishwashing liquid to clean plates, refrigerators and more
Cost of carpet cleaner
Cost of stain remover
Cost of wood cleaner
Cost of furniture polish
All the above supplies can be effectively categorized into essential cleaning supplies, common cleaning supplies and marketing and office supplies. The right cleaning supplies are essential for success of good cleaning company. All the above costs are also considered as cost of supplies or cost of direct materials for cleaning business.
B. Cost of labor
This is major component of cleaning service. This is what the cleaner would provide on the basis of professional expertise. Cost of labor is computed by charging hourly rates for actual hours worked. The first step in cleaning business is to make formal visit to client premises.
The company shall estimate the size of the premises to be cleaned. The amount of time and the number of workers needed to clean the premises also need to be estimated. The number of hours will vary on the type of cleaning service the client has chosen.
The final step would be to establish hourly rates. This will depend again on the type of services required by the client. To decide the cost of labor in providing services, the company has to also consider industry practices along with regulations applicable to them.
What should the cost of service include?
The company can alter or modify services that are prepared to provide for customers. This can be mentioned in the marketing brochure of the company. Further, they can use this tactically for the checklist for training employees. The decision to add certain costs would be taken by the senior management of the company.
Cost of goods sold is defined as the complete cost legitimately brought about by a company to sell products and services. During the manufacturing process, the expense of goods sold is otherwise called the cost of goods manufactured.
The calculations for COGS are led to decide the measure of production costs that will be acquired by the organization when making the products. As a rule, the COGS incorporates crude material costs, work expenses, and overhead expenses. Look at the accompanying simple tips to discover how to determine COGS in companies.
The factors involved in the calculation of COGS
To have the exact COGS calculation, it is essential to know the three important parts which are:
Starting inventory costs (towards the start of the year)
The starting inventory expenses are on the whole the inventory expenses toward the start of the period or the current monetary year. The equalization of the starting inventory expenses can be sorted out from the current record balance, or the organization’s underlying balance sheet, or the balance of the earlier year.
Finishing Inventory Costs (toward the year’s end)
The completion inventory expenses are generally the inventory expenses toward the finish of the period or the finish of the current monetary year. The equity of the completion inventory expenses can be sorted out from the adjustment report toward the finish of the period.
Inventory Purchases
Inventory purchases incorporate all crude material bought by the company, both money and credit exchanges. They likewise incorporate the expense of transportation excluding discount and returns.
Instructions for calculating COGS
The COGS computation strategy in manufacturing companies is somewhat dissimilar as that of in service and retail organizations. Here are the means to determine it:
1) Determine the raw materials used
As the manufacturers make their own product, they need to have crude materials. Essentially, raw materials are the principle necessity for determining the expense of goods sold. Manufacturers have the responsibility to decide the amount of raw materials which will be utilized to make a thing.
To confirm that, they should discover the amount of raw materials that are left toward the finish of the period after the underlying balance of the period added to the bought items during that period. Here are the means by which to compute all the raw materials utilized for the production process:
Raw materials utilized = starting balance of raw materials + raw material which are bought – end balance of raw materials
2) Compute the additional production costs
Notwithstanding the basic raw materials, different costs exist that influence the process of production of products, from raw materials to completed goods. These expenses include:
Labor costs
Overhead expenses (non-essential raw material costs) for example, power costs, upkeep costs, reparation costs, etc.
3) Determine the total production cost
The total production cost incorporates costs acquired when the products are gone into the process of production and expenses brought about to make these things.
To decide the cost of the product, the raw materials prepared toward the start of the production time frame must be added to non-fundamental raw materials (for example labor and overhead), afterward deducted by the things staying in the stockroom toward the finish of the period.
4) Compute the cost of goods sold
This is the ideal opportunity to compute the COGS. You should simply include the completed goods made in the warehouse toward the start of the period with the production cost of the current time frame, afterwards lower the completed products staying in the warehouse toward the finish of the period. Here is the equation:
Cost of Goods Sold = Starting balance of completed goods + production finished in the current time frame – last balance of completed goods
When the expense of goods sold is determined, you can ascertain your business’ gross income. It is the quantity of cash that your business gets from deals before deducting charges and different costs.
Conclusion
Computing COGS by the manual way is quite a headache, in light of the fact that typically it requires a ton of documents to record every part. Separate paper records or spreadsheets regularly get lost or even harmed. What’s more, the manual calculation of COGS is additionally inclined to mistakes.
The calculation of COGS can be made significantly less complex and simpler with the assistance of a web based accounting technique.
With the assistance of HashMicro’s cloud-based accounting system, you can determine the COGS precisely in not more than seconds. All your money related information can be observed whenever and anyplace through the same system.
