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QuestionsCategory: Financials QuadrantCompany worker salary cost should calculate under COGS or SGA
Lim Marko asked 4 years ago

Hi guys, 
Currently I have just finished my lesson on Selling, General & administrative Expenses under the Financial Quadrant section. 
So I am a bit confuse by the worker/director salary cost, which category of the income statement should this cost fall under to COGS or SGA? 
If different company chooses a different category  salary cost, as an investor how do we know which category has the company choose? 
Is there any accounting standard we should know or watch out for before we start reading the numbers from the annual report??
Thanks guys for taking time to read this and hope to hear from you guys soon 
Your sincerely 
Marko Lim 
 
 

3 Answers
Victor Chng answered 4 years ago

Hi Marko,
 
It depend on the type of business to classify worker salary. For instance, if the company is a service based business such as Vicom, their COGS should be their worker salary but if the company is a product based business than the salary should be under the SGA. I hope i clarified your doubts. Feel free to ask more questions if you are still unclear. 

Lim Marko replied 4 years ago

Am I right to say that company service company such as ” raffles medical, SATS, United Overseas Bank , Capital Land Mall Trust , Dairy Farm and Google” such companies when they compute their COGS salary is part of the component ?

For Production based business such as ” Apple, intuitive Surgical Inc, Riverstone holdings and Micro Mechanics (holding) LTD” such companies when they compute their SGA salary is part of the component?

Thanks for the reply look forward to hear from you guys

Yours sincerely
Marko Lim

Victor Chng replied 4 years ago

Hi Marko,

Most of the time, the company annual report will calculate for your the COGS hence you no need to compute it. You are right that Raffles medical and SATs should use the staff salary, you also can add in their cost of raw material if any which is use to provide their service to get a more accurate COGS.

Please note that Investment Quadrant method cannot be applied to Bank, Insurance or REITs. For all this class of asset, COGS should not be calculate.

As for Dairy Farm, they are not a service based business they are in the supermarket business. They are selling products. Hence you should not include their staff salary into the COGS.

What I meant is produce based business not production based business. For those companies you just mentioned above like apple,riverston and etc you can just use the COGS that they given.

As mentioned above, most companies’ annual report will calculate the COGS for you already. Hence you no need to adjust anything, just use the figure. As for service based business they usually don;t calculate for you hence you have to use their staff cost and cost of material to provide service as COGS

Lim Marko replied 4 years ago

Hi Victor

Thanks I had really learn a lot from you today.. I think i shall proceed with the rest of the module first if I have any problem I will seek your advise again..

Thanks for all your help!!!

Victor Chng replied 4 years ago

Hi Marko,

Glad that you have learn something today. Keep up the good work. Remember investing may look difficult at the initial stage just like how we learn abc when we are young but if you maintain the perseverance, it will get easy as time goes.

Do ask me more questions as I am more than happy to answer of it.

Happy Investing :)

Hendra Wijaya answered 4 years ago

Hi Victor/Marko,
Sorry to jump in here.. I had the same struggle when trying to classify what is COGS/SGA.
I have included the Income Statement for Comfort Delgro, and indicated three items as SGA, while the rest will be COGS.
Would you have done the same? Your thoughts please.
Thank you.

Regards,
Hendra
Displaying IMG_20170705_222844.jpg

Victor Chng answered 4 years ago

Hi Hendra,
 
I cannot seem to see the image that you upload. 
 
I have look through comfort Delgro Annual Report 2016. If I will to calculate COGS, this are the item I will include
 

  1. Staff Costs
  2. Fuel & Electricity cost
  3. Contract service

The rest will be SGA

Lim Marko replied 4 years ago

Hi guys

Thanks for the workshop yesterday!!!

Cheers!!!

Victor Chng replied 4 years ago

Hi Marko,

You are welcome :)