## HOW TO CALCULATE THE COST OF SALES?

### COMMERCIAL ENTERPRISE

The cost of business is primarily determined by two things. One would be the direct expenditure and the other would be indirect expenditure. Direct expenditure refers to the money that you would have to pay for the operation of your business, including the salaries and wages of your employees. Indirect expenditure on the other hand refers to the money that you would have to invest in buying raw materials, building of raw material plants, rent on land, utilities, fixtures, etc. That is, the money that you would have to spend in order to expand your business. These two factors would determine the cost of business.

### INDUSTRIAL COMPANY

Now that you have understood the nature of cost of business & how to calculate business cost, let us checkout the various ways through which these two factors can be calculated. First of all, it is important to know about the working capital. Working capital is the money that a business needs in order to finance the various operations. For this purpose, the businesses use short term and long term assets as working capital. These assets might be in the form of cash reserves, current accounts receivable, assets under management, accounts payable, etc.

In case your business requires a lot of money, it is necessary to divide the cost of business by the amount of money required. The next step would be to look at the cost of purchases. This would again divide the cost of business by the total amount of money required. If the business deals with a lot of commodities, then the cost of production or cost of consumption is also necessary to be considered. While determining the cost of business, it is important to remember that the prices of commodities are always changing.

## WHAT ELEMENTS INFLUENCE TO DETERMINE THE COST OF SALES?

One more important factor that should always be remembered while calculating the cost of business is to determine the effect of inflation on the business. It is not difficult to calculate the cost of business & how to reduce cost of business. All one has to do is keep an eye on the prices of various commodities in the market, and keep a tab on the price change for every six months or so. This will help you decide what to do about the cost of production.