About

Cost Of Sales Statement

A Foreigner’s Guide to the Turkish Cost of Sales Statement
Turkey follows a strict "Cost Accounting" system defined by the Uniform Chart of Accounts (specifically the "700 Series" accounts). This statement bridges the gap between the factory floor and the Income Statement.
1. The Structure: The Production Funnel
It follows the flow of goods through the factory. It calculates the cost of goods manufactured first, then adjusts for stock changes to find the cost of goods sold.
A. Direct Production Costs (Direkt Üretim Giderleri)

• Direct Raw Materials: The cost of materials that actually went into the product (Steel, Cotton, Plastic).
• Direct Labor: The wages of the workers touching the machines.
• General Production Overheads: Electricity, rent, depreciation of machines, maintenance.

B. Change in Work-in-Process (Yarı Mamul Stok Değişimi)

• Adjusts for goods that are half-finished at the beginning/end of the period.
• Result: Cost of Goods Manufactured (Üretilen Mamul Maliyeti).

C. Change in Finished Goods (Mamul Stok Değişimi)

• Adjusts for finished goods sitting in the warehouse.
• Result: Cost of Goods Sold (Satılan Mamul Maliyeti).

D. Commercial Goods (Ticari Mallar)

• If the company also buys and sells finished products without touching them (trading), that cost is added here.

2. "Pill Info" (Key Insights) for Foreigners
a. The "Imported Inflation" Factor (Direct Materials)
Turkey is an energy and raw material importer.

• The Insight: Look at the "Direct Raw Materials" line.
• The Risk: If the Turkish Lira devalues, this cost item spikes immediately (within 1-2 months). Foreigners often mistakenly think a cheaper Lira helps Turkish exporters. It does, but it also explodes their input costs. You need to know the "Import Content Ratio" inside this line.

b. The "Minimum Wage" Shock (Direct Labor)
Turkey often raises the minimum wage (Asgari Ücret) significantly once or twice a year to combat inflation.

• The Insight: Unlike Europe where wages are stable, a sudden government decree can raise the "Direct Labor" cost by 30-50% overnight.
• Check: Is the company labor-intensive (Textile) or capital-intensive (Automotive)? Labor-intensive firms suffer more from these hikes.

c. The "Energy" Component (Overhead)
Under "General Production Overheads" (Genel Üretim Giderleri), energy is often the biggest chunk.

• The Insight: Turkish industrial electricity tariffs can be volatile. High overheads usually signal old, inefficient machinery or high energy prices.

3. Tips for Easier Analysis
Tip 1: The "710-720-730" Rule
In detailed Turkish Trial Balances (Mizan), costs are coded:

• 710: Raw Materials
• 720: Labor
• 730: Overheads

The Ratio Analysis:
Ask for the breakdown of the Production Cost.

• If 710 (Materials) is > 70%: The company is a "Converter." Margins are thin, dependent on commodity prices.
• If 720 (Labor) is high: High social risk, high sensitivity to wage hikes.
• If 730 (Overhead) is high: High fixed costs (Depreciation/Energy). Volume is key. If sales drop, profitability crashes because these costs don't vanish.

Tip 2: Inventory Valuation Method
Ask: "Which valuation method do you use?"

• Most Turkish companies use Weighted Average Cost (Ağırlıklı Ortalama).
• Almost no one uses LIFO (Last In, First Out) anymore as it's restricted.
• Why it matters: In high inflation, Weighted Average lags behind current prices. This creates "Inventory Profits" (Fiktif Kar) – the company looks profitable because it sold old, cheap stock at today's high prices. But replacing that stock will cost much more.

Tip 3: Production vs. Sales Mismatch
Compare "Cost of Goods Manufactured" vs. "Cost of Goods Sold."

• Manufactured > Sold: The company is piling up inventory. Why? Are sales slowing down?
• Sold > Manufactured: The company is depleting old stock.

4. Mini Dictionary (TR - EN)

Summary: What to Look For?

1. Raw Material Dependency: Is the company just assembling imported parts? (High FX risk).
2. Labor Intensity: How much will the next minimum wage hike hurt the bottom line?
3. The "Efficiency" Black Box: Look at General Production Overheads. If this number is growing faster than production volume, the factory is getting inefficient.

Cost Of Sales Statement