Merchandise Business Question

[Shunmas]

Hi All !

I need your help with 2 questions:

Q1. Company XYZ imports raw soaps (without cover) and pays import expenses. It packages (just put covers on them using machine) the soap using its own machinery, where labour is working. It then sells those soaps. Now What should be included in COGS:

Currently, I am doing this:

Beg. Inventory + Purchases during the year + Import expenses + Packing expenses (The packing expenses include the fixed and variable salaries and depreciation of machinery being used to cover those soaps and rent of factory)....I don't know about packing raw materials whether to use it not or not .....Am I accounting for above correctly ?

Q2. How to determine product cost using the above example (in a trading entity ? Is it Cost of Good Sold divided by Number of Units sold that will give us Product cost ?

You help is highly appreciated.

Profound Regards.

 

[Scalloway]

Q1. It depends. If I was doing a P&L account for tax purposes I would just include direct costs. Allocating overheads is fraught with difficulty.

Q2. Product cost comes from the number produced, not the the number sold, assuming all production will be sold eventually.