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Cost of Sales: Definition and Meaning
Definition
Cost of sales is the direct cost associated with generating revenue. In a service or construction business, it may include direct labor, materials, subcontractor costs, or project-related expenses.
Why It Matters
Tracking cost of sales helps management understand gross profit and evaluate whether revenue is being generated efficiently. In construction, accurate assignment of costs to jobs is central to evaluating project profitability and estimating future work.
Cost-of-sales classifications should be applied consistently so that comparisons across periods, projects, and business units remain meaningful.
Example
A contractor records project labor, materials, and subcontractor charges assigned to a job as cost of sales.
Related Terms
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