Introduction:
In this article, we will discuss the cost of sales components of cost of sales and the difference in cost of goods sold and cost of revenue or cost of sales. We will also discuss the cost of sales for a dental practice with some components of cost of sales in this business.
For understanding the cost of sales of dental practice it is necessary to understand about nature of business of dental practice, so we also communicate of nature of business of a dental practice. We will conclude our discussion with the importance of cost of sales.
Cost of Goods Sold for a Service Business:
For a service business, we will use the word cost of revenue or cost of sales rather than cost goods sold. It is logical to understand that service business doesn’t include the goods and render services to the clients, so the cost of their services will be considered instead cost of goods sold.
Cost of revenue for a services business is any direct cost incurred to render the service, no fix or indirect cost will be considered in cost of revenue or cost services. Only direct costs will be part of cost sales.
Any direct material cost, direct labour cost and other variable costs incurred to render the service will be deemed as cost of revenue. These cost will be allocated for a period, so according to the matching concept of Accounting, we will consider the only costs uncured or consumed within the respective period.
For material, we will use the following equation:
Cost of Sales= Opening Inventory + Purchases – Closing Inventory
Dental Practice:
The dental practice is the place where a dentist performs dental treatments and procedures on patients. The dental office is often found in government offices, hospitals, schools and some other health-related areas.
The dental practice is usually performed in a clinic where a dentist or group of dentists deliver the professional services to clients. In majority dentist charged low fees rather than other professional doctors.
Cost of Revenue for a dentist practice:
Cost of revenue or cost of service of a dentist will be the direct cost incurred for performing the services to the patients.
Components of cost sales for the dentist.
Direct Material:
Any medicine, medical instrument, teeth cleaner, supplements, injections and pain killers used to serve a patient will be deemed to a cost of revenue for a dentist practice.
Direct Labor:
Professional dentists or support staff hired to serve the patients, all costs incurred to serve the patients will be deemed to a cost of revenue, except for the fixed salaried staff.
Another variable cost:
Any other cost incurred to perform duties to a professional dentist will lead to the cost of sales, like referral cost, packing material consumed, etc.
Conclusion:
Costing of any business might not be possible without understanding and calculation of the cost of sales, because without determine the cost of sales, price of service might not be considered.
If you are going for a dentist practice for in a dentist practice, then you have to consider the cost of revenue to evaluate the financial performance of your business.
