Business
Understanding the components of the cost of sales is very important in any given business irrespective of size and location. The cost of sales is a broad term referring to both the cost of production as well as the cost of services provided to the customers by the business enterprise (Anthony, 2005). Thus the components of the cost of sales include raw materials, labor and another factor that went into the production of the good or the service to the customer as well as the service rendered too the customers themselves. In a food and beverage establishment the components of the cost of sales include the procurement of the foods and beverages, the machinery used in making the food, the labor associated with the making the food and the beverages as well as the labor tasked with serving the customers after they have made clear their exact order.
The inventory system is the best way of calculating the cost of sales. This system works by taking the beginning inventory of a given period, adding the total amount of purchases and then deducting the ending inventory. Thus if a company starts with a total of $1000 and spends $300 in purchases and the company has an inventory of $700 at the end of the period then the cost of sales for the company is $600. This is arrived at through this simple formula $1000+$300-$700
The cost of sales greatly affects profitability in a food and beverage operation. A low cost of sales means that savings are made and these savings later show up as profits. A low cost of sales is therefore encouraged so as to maximize profits. The cost of sales can be improved by trimming down the work force to bare minimums. This means that only essential personnel are retained (Anthony, 2005).
References
Anthony, m. (2005). Cutting sales cost. New York: Funk & Wagnalls in association with Printers' Ink Pub. Co..
