Capitalism 2 and Capitalism Lab Forum

I don't understand -

1. what the cost of sales figure is at the top of the financial report. Its very large if its just the raw material I buy from suppliers

2. what happens to inventory if its not sold. does the factory stop producing at a certain level, does it pile up indefinately or is it wasted.

johnnywas wrote:I don't understand -

1. what the cost of sales figure is at the top of the financial report. Its very large if its just the raw material I buy from suppliers

2. what happens to inventory if its not sold. does the factory stop producing at a certain level, does it pile up indefinately or is it wasted.

1. Cost of sales is an accounting term (more precisely, its part of cost of goods sold - COGS). Its the direct cost associate with operation (primary operation cost). If its a retail store, COGS contains the cost you buy from wholesalers, freight cost, salary of clerks, storage cost, and other overheads. If its a factory, its mainly raw material purchase cost and freight cost, salary of workers, storage cost, and other overheads.

Since the the income statement in-game already separate salary and overheads, and no implementation with storage cost. It's mainly raw material purchase cost or wholesalers product purchase cost, plus the freight cost. (If its raw material production building, it has an extra consumption cost, which I think should be something like purification or equipment cost, edited Aug 2, now we know they are depreciation/depletion)


2. IIRC, if the product from a factory is not sold, it will hold inside a unit. And the utilization stops. Hence a unit stops when the capacity is reached, it will neither buy or sell (if you observe closely you will see each unit has a deep blue bar indicate capacity). And the product quality stayed inside will slowly degraded overtime (at which rate I am not sure and correct me if I am wrong, but I believe depending on what kind of product it is, edited Aug 2, after experiments, I found out every goods has expiration date : forever XD).

Edit Aug 2, Now we also know the corporate income statement is not consolidated financial statement, but just the aggregate of individual firms. So the revenue of factory and the purchasing cost of sales from factories in retail stores are counted separately, instead of cancelling each other out. If you rise the price of factory product even under internal sales, you end up having higher revenue and higher cost of sale, but your profit stay the same and profit margin goes down. If this is done between factories and warehouses (and only store products inside warehouses), you will end up having higher inventory, higher revenue, and higher profit all together. (profit margin is undetermined, usually higher). This is a good way of cook the book via accounting means for a limit period.

Thanks. I understand inventory better now

You are right about what the game classes as COS. I was confused by the fact that it included purchases by my retailers from my internal suppliers which produces a rather large number for COS. Now I know.

Btw, the game does seem to do a reasonable job of classify COS of sales. Accountants only use the term for inventory, direct labour costs and freight. Non direct costs are included in Salaries lower down the income statement. In the game most labour is in the salaries figure which I think is fair enough as it would be difficult for players to work out labour costs if they were hidden in the COS figure.