Everhour connects tracked billable time and expenses to invoices, while cost price math keeps pricing tied to real inputs.
Estimate total cost by combining labor hours, materials, and overhead. Know your numbers before you send the proposal.
Indirect costs on top of labor + materials
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A cost price calculation answers a practical pricing question: after you identify the cost of goods sold, project costs, labor cost, expenses, and target margin, what price or profit result follows? For a U.S. small business, gross profit starts with net receipts after returns and allowances minus COGS. Net profit goes further by subtracting business expenses from business income.
This calculation also separates pricing math from tax reporting. A C corporation computes federal income tax from Form 1120 taxable income at 21%, with state corporate income or franchise taxes handled separately by state. A sole proprietor reports each business on Schedule C, and Schedule C net profit or loss flows to Schedule 1 of Form 1040.
COGS depends on the business model. A retailer usually starts with inventory and purchases. A manufacturer adds direct labor, materials, freight-in, and allocable manufacturing overhead such as factory rent, utilities, depreciation, maintenance, and supervision. Most service businesses with no merchandise income factor use net receipts as gross profit because they do not compute merchandise COGS.
U.S. filers generally compute COGS with beginning inventory plus purchases, labor, materials, and other costs, minus ending inventory, when production, purchase, or sale of merchandise is an income-producing factor. Form 1125-A line 8 carries COGS to the income tax return. Inventory generally uses cost, lower of cost or market, or another IRS-approved method.
Use this sequence for a cost price result: net receipts minus COGS equals gross profit, then gross profit minus operating expenses equals net profit. For inventory COGS, use beginning inventory plus purchases, direct labor, materials, and other costs, minus ending inventory. Margin uses revenue as the denominator, while markup uses cost as the denominator.
Example: a small product business has $9,000 in beginning inventory, $28,000 in purchases, $11,000 in direct labor, $6,000 in materials, $4,000 in other production costs, and $7,000 in ending inventory. COGS is $51,000. With $96,000 in net receipts and $22,000 in operating expenses, gross profit is $45,000, net profit is $23,000, and gross margin is 46.875%.
A one-time calculator is enough for a quote check, a planned selling price, or a quick review of whether COGS and expenses leave a workable profit. It also works when the inputs come from a current spreadsheet and the decision affects one product, one project, or one short period.
A managed workflow becomes necessary when costs change as people log billable hours, add reimbursable expenses, or mark tasks non-billable. Everhour Billing & Invoicing converts tracked billable time and expenses into invoices, calculates invoice amounts from rates while excluding non-billable tasks, and keeps invoice status connected after exports to QuickBooks Online, Xero, or FreshBooks.
This content is for general information only, may not be fully up to date, and is provided without any warranty or liability.
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Start with beginning inventory, add purchases, labor, materials, and other production costs, then subtract ending inventory. That gives COGS when merchandise production, purchase, or sale is an income-producing factor. Add operating expenses only when you are calculating net profit or setting a price that must recover more than COGS.
Most service businesses with no merchandise income factor use net receipts as gross profit. A service company still needs labor, contractor, software, travel, and overhead inputs for project pricing, but those costs do not automatically become inventory-based COGS. Classify the cost based on the business model and the reporting purpose.
Use margin when the target is a percentage of selling price. Use markup when the target is a percentage of cost. A 50% markup on $100 creates a $150 price, which is a 33.33% margin. A 50% margin on $100 of cost requires a $200 price.
The United States has state and local sales taxes, not a federal VAT or national sales tax. If a seller must collect state or local taxes imposed on the buyer and remit them to the government, those collections generally are excluded from gross receipts or sales. Taxes imposed on the seller and collected from the buyer are included in gross receipts.
Break-even analysis uses fixed costs divided by contribution margin per unit, where contribution margin equals sales price per unit minus variable cost per unit. That calculation is separate from gross-margin accounting because it requires a fixed-versus-variable cost split. COGS alone does not provide the full break-even answer.
Everhour Billing & Invoicing converts tracked billable time and expenses into client invoices. It calculates invoice amounts from project or member rates, time, and billable expenses while excluding non-billable work, then exports invoices to QuickBooks Online, Xero, or FreshBooks with status synced back to Everhour.
Everhour Reporting can compare billable and non-billable time, labor costs, revenue, profit margins, and actual hours against estimates by project. Saved reports can be exported in CSV, Excel/XLSX, or PDF format for spreadsheet review, client sharing, or accounting handoff.
Use Everhour Billing & Invoicing to convert approved billable time and expenses into invoices, exclude non-billable tasks, and keep exported invoice status connected for cleaner project revenue.
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