A service business costing - Cost of service.

jacktardean

Hello,

Im currently on the module Elements of costing and have been introduced to CoGS which I already had a basic understanding on. I'm now thinking outside the box of the course and in a real world situation but how is a pure service business' CoGS calculated, for example a accountancy firm, law firm ect.

Their main cost to for the sale will be the hourly rate needed to pay the employee for the time they spend on a particular project. But how would this be fully implemented into a accounting software. I'm familiar with the P&L Statement for a standard CoGS business where stock is bought in and sold as the inventory balance would increase and decrease for sales and purchases and the CoGS would equal to cost for you to obtain that product.

Now how would it be done for a service? Would it be worked out over a month? so the total sales in a month - the gross pay to employees? and in the chart of accounts would the payroll be set up as a CoGS/CoS account so it would reflect that in the P&L Statement?

I don't know a large amount as I'm only on level 2 but I do a lot of off topic studying as well to learn about the bigger picture of things.

Any help would be appreciated,

Thanks,
Jack