what is included in cost of revenue
as mentioned before every company s direct costs and cost of revenue may be calculated differently here s a broad range of what is included in the cost of revenue though not all of these costs may be relevant and other direct costs not included in this list should be included direct materials are the costs of raw materials used in the production of a product direct materials often include any shipping or handling costs associated with acquiring these materials direct materials are included in the cost of goods sold component of the cost of revenue direct labor is the costs of wages salaries and benefits paid to employees directly involved in the production or delivery of the product or service companies may directly trace the payroll costs of specific employees to product lines though this often entails an allocation process especially for those employees who may work on different product lines direct labor is also included in the cost of goods sold component of cost of revenue sometimes there are costs a company simply can t directly trace however these costs are still necessary for the manufacturing of a product manufacturing overhead includes all non directly associated costs of the production process such as utilities or equipment maintenance these are also usually reported as part of the cost of goods sold freight and shipping are the costs of shipping finished products to customers or retailers these are included in the cost of revenue because they represent expenses necessary to distribute goods as part of the sale without these expenses customers and retailers would be unable to receive the products so these costs can often not be avoided in a similar manner duties and taxes may be required to distribute a good this is especially true for goods being distributed internationally that require importation or exportation though companies can choose to not distribute to these regions these costs are often avoidable once a company commits to distributing to a region returns are costs associated with good not kept or allowances given to customers such as shipping costs or restocking fees companies may expect that a certain percentage of goods will be returned as the normal course of business in addition companies may incur costs while products are under a warranty period these costs may be considered a cost of revenue because customers may be have been incentivized to buy a good partially because of the warranty period companies may pay commissions to sales agents distributors or other intermediaries involved in the sale of the product these commissions are often directly related to the product and not broadly related to the company as long as these costs can be tied to a product companies often include them in the cost of revenue because goods were often sold due to this extra incentive awarded to sellers as mentioned before companies have very different structures from one another there are often other direct costs unique to a specific product line or industry that necessitate inclusion into cost of revenue though the term ends with the word revenue cost of revenue is not a type of income it represents all of the costs that go into earning revenue cost of revenue vs cost of goods soldcost of revenue is different from cost of goods sold cogs because the former also includes costs outside of production such as distribution and marketing the cost of revenue takes into account the cost of goods sold cogs or cost of services provided plus any additional costs incurred to generate a sale although the cost of revenue factors in many costs associated with sales it does not take into account the indirect costs such as salaries paid to managers the costs considered part of the cost of revenue include a multitude of items such as the cost of labor commission materials and sales discounts 