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Cost of Goods Sold (COGS)
What is Cost of Goods Sold (COGS)?
Cost of Goods Sold (COGS) in the construction industry represents the direct costs associated with the production of goods or services that a company sells. These costs may comprise the cost of raw materials such as lumber, steel, concrete; direct labor costs; storage costs, and direct utility costs. It can also include direct expenses like subcontractor costs, labor burden (i.e., benefits, insurance, taxes related to employee wages), material costs, and equipment costs that are directly attributable to a project's completion. COGS does not include indirect expenses such as sales and distribution costs or overhead costs such as office rent and utilities. In essence, COGS in construction is directly tied to specific projects and is a key factor in determining a project's gross profit and thus a company´s profitability.
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Other construction terms
What is a Conditional Lien Waiver?
A Conditional Lien Waiver is a legal document used in the construction industry that states a contractor, subcontractor, or supplier will give up or waive their right to place a lien on a property, under the condition they receive their expected payment. This waiver serves as a protection mechanism for the party responsible for payment, ensuring that once the payment is made, no future lien could be placed on the property for the services or materials provided.
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What is a Deduction?
A deduction in the construction industry refers to a reduction or subtraction of expenses or costs incurred during a construction project. Typical deductions may include costs of materials, labor, damage repairs or maintenance, and professional fees such as architect or engineer services. It is essential for construction businesses to keep track of these expenses as they can be beneficially used for tax deduction purposes. The aim is to lower the overall taxable income, resulting in a reduced tax bill. However, it is crucial to ensure that all deductions comply with laws and regulations to prevent any potential legal implications.
What is a Backup?
A backup in the construction industry is a way to safeguard data and ensure business continuity in the case of unexpected events, such as computer system crashes or accidental file deletion. It involves creating duplicates of data stored in software applications, databases, and digital files, which are typically saved on external devices or cloud storage systems. Hence, in case the originals are lost or corrupted, the backed-up data can be restored with minimal disturbance or downtime. For example, if the blueprint data of a construction project is accidentally wiped out, a well-executed backup system can restore the vital information, preventing project delays. It's integral to Plan Risk Management to counter data loss events, which in the construction sector can cripple project management systems, delay timelines, escalate costs, and affect architectural integrity if not addressed promptly and effectively.
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