Energy Cost - eCOGS: an Important Measure Made Possible by Energy Analytics
Mo Rousso (Founder and COO, HelioPower) has written this article about Electricity Cost of Goods or eCOGS as being an important measure made possible by energy analytics. Energy analytics, such as HelioPower’s PredictEnergy software, and associated practices provide the methods to look at your business’ performance in new and unique ways. A key outcome is the ability to capture energy cost above the gross margin line and implement new management practices and incentives to drive down these energy cost.
Cost of Goods Sold: One of Three Types of Expenses
In the accounting world, there are three overall categories of expenses: cost of goods sold, operating expenses, and extraordinary expenses. Cost of goods sold (COGS) is the direct cost of the products and services your business sells. COGS can be directly identified in the end product. For a manufacturer, the cost of raw materials and labor is a direct cost and is usually considered a controllable cost. Significant business attention and resources are focused on these costs in order to increase gross margin. Purchasing departments are created and team incentives are paid on the ability to reduce COGs and increase gross margin.
The cost of insurance, fuel, and maintenance for the trucks used to carry the bricks and mortar are indirect costs. While these costs are part of the product produced and are incurred in the process of generating revenues, they cannot be identified as belonging to a specific job or product. These indirect costs, which also include items such as heat, power, insurance and rent are also known as operating expenses or overhead.
Operating expenses are listed under expenses in the profit and loss statement. Only the direct cost of the product is included in the calculation of cost of goods sold and margin. The COGS varies directly with the volume of goods produced and sold; for example, each sale adds to cost of sales. Operating expenses, on the other hand, are relatively fixed. The business will pay the same amount of rent and insurance whether 10 items or 100 items are sold.
To Learn More About eCOGS visit our web page for more details.