This article will discuss the cost of sales, components of cost of sales, nature of business of the dental office, and implications of the cost of sales for dental office business. This article aims to understand the cost of sales of dental office business.
To understand the cost of sales of the dental industry, we must understand the nature of business and the implication of cost on this business.
Let’s start our discussion with the introduction of cost of sales or cost of revenue.
Cost of sales:
The term “cost of sale “is self-explanatory, any laymen can also assess the meaning of this term, but we will discuss the brief implications of the sales cost.
The cost of sales includes all direct costs for providing services directly or producing and delivering the material to the productions. According to accountancy rules, sales will be recorded when risks and rewards will be transfer to customers. The cost of bringing the material to customers is considered administrative costs rather than the cost of sale.
And the cost of goods sold is recognized when the sales are recognized at the same time by respecting the matching principle.
If it is the first time for you to see the cost of goods sold by the company, you can find it in the income statement during the period right after the total sales.
The purpose of this discussion is to understand the cost of sales means any direct expense incurred to produce or deliver the service will be included in the cost of sales.
Dental Office Business:
To understand the cost of sales for the dental office, we must understand the nature of business.
Dental professionals own this business; it doesn’t contain only dental treatment or dental services; it includes some other financial and clerical concerns.
Components of a dental office:
- Reception area.
- Patients records and computers
- Dental clinic.
- Storage areas
Cost of Sales for Dental Office:
Any direct cost to render the dental office service will be considered the cost of sales, excluding all indirect and fixed costs.
The dental office is primarily based on service nature business, so its cost of service will be deemed cost of revenue. Any direct expense incurred to earn revenue will be considered the cost of revenue.
Let’s talk about the relevant direct cost included in the cost of revenue of a dental business.
Any direct cost utilized in the dental clinic like medicines, injections, teeth cleaners. Other than the dental clinic, there are four other dental office components like reception area, patients’ records, and storage area. All direct costs are incurred in each component deemed to cost of sales, individually or collectively, for the dental office.
Staff used to provide dental office services; their remunerations will also be considered for the dental office’s cost of revenue. Fixed salaries will not be part of the revenue cost; these costs will be allocated to the administrative expense.
Other Variable Costs:
Other than material and labor, any additional cost incurred to provide the services will also be considered the cost of sales like photocopying expenses, services from any other professional, etc.
If you’re going for the dental office business, first, you have to understand the dental business’s cost of sales to assess your business’s financial performance.
When you determine the cost of sales, it will be feasible to determine your service’s price and gross and net profit margins.