Cost of Goods Sold for Healthcare Business – Explained


In this article, we will discuss the cost of goods sold and methods of calculating the cost of goods sold. We will also discuss the difference between the cost of goods sold and the cost of revenue, also introduce the healthcare business.

After a brief discussion of the cost of goods sold and the healthcare business, last we discuss the implication of the cost of goods sold for the healthcare business and conclude our discussion.

What is the Cost of Goods Sold?

The cost of goods sold is the direct cost incurred to sell the product. It includes all relevant direct costs incurred to produce and sell.  All fixed costs should be excluded from the cost of sales and will be added to other relevant heads of costing.

The formula for Cost of Sales is as following:

Cost of Goods Sold= Opening Inventory + Purchases- Closing Inventory

What is the Cost of Revenue?

The Cost of Revenue or Cost of Revenue is the cost incurred to render the service. Because in the service industry, there is the existence of goods so business use service rather than goods. For the service business, we will use the term “cost of revenue or cost of service” rather than the cost of goods sold.

What is Healthcare Business?

In terms of Accounting, the healthcare business is considered in Service Business rather than manufacturing.  The Healthcare sector is divided into many sectors but there three main categories for dividing the healthcare sector.

  1. Hospital Activities
  2. Dental practice and medical activities
  3. Other human  health activities
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Healthcare Business might be institute or sole proprietor, usually, Services performed by institutes are known as hospitals, and services provided by the individual are known as the clinic.

What Cost of Revenue for Healthcare Business?

The cost of revenue for the daycare business is all relevant direct cost of delivering the services.  In the Services business, there is no existence of inventory so we would consider the other relevant cost for rendering the services.

We consider all relevant costs incurred to provide the service as part of the cost of revenue. 

 There are the following components of the cost of sales for the healthcare business.

Direct material:

Any material used to provide services such as medicines, injection, and other drugs used to provide the service.

Direct Labour:

Direct labor will also be part of the cost of revenue for the healthcare business and direct labor for the health care sector is services of professional doctors and their helpers. Fixed salaries and remunerations will not be the cost of sales or revenue.

Direct overheads:

Other direct overheads for providing health-related services will also be considered as the cost of revenue, such as packing of medicines, instruments hire for rendering the services.


The cost of revenue is the most significant part of the costing process and without identifying and understanding the cost of revenue, the price of service can’t be determined by the service provider. Cost of revenue is important for both all three kinds of health and care sector’s businesses.

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If you have any questions related to the cost of revenue of the healthcare sector, you may leave a message for me in the comments section.  I will respond to your message on a priority basis.