INVENTORY & COST OF YOUR GOODS SECTION

[rhonda5838]

I have a Bath & Body Care Business that carries an inventory of Supplies & the actual finished Products made from the previous and current year. I purchase a large quantity of Essential Oils, butters, additives etc to make my products during the year. Some but not all of these materials & supplies will be used to make products during the year while the rest will be carried over into my inventory along with any products not sold and still on hand.

When filling out the COST OF YOUR GOODS section I want to make sure that I am entering everything correctly.

1. COST OF PURCHASES:     Is this the total cost for making the products I sold?

2 MATERIAL & SUPPLIES:      Do I enter ALL PURCHASES for the year even if it is now being carried in my ending inventory?    Since my ending inventory is considered an asset wouldn’t the total material & supplies expense off set each other?   If not please explain

3. OTHER COST TO PREPARE FOR SALES: What kind of expense is this for?

I have a Soapmaker program that I use to enter all my purchases and record batches of products made. At the end of the year it breaks down my ending total value of SUPPLIES & total value of PRODUCTS in stock that I am to use as my ending inventory when filing taxes. The ending inventory also includes all my shipping boxes, mailers etc

4. Since purchasing shipping boxes and mailers are not an actual material & supply because it doesn’t become a part of the finished product do I enter the total amount I paid during the year for these items in Office Expense?

Thanks so much for your time and your patience with answering my questions.

Thanks
Rhonda

[ColeenD3]

Let me address each question.

1) Purchases are what you actually purchased during the year. You bought essential oils, butters and additives. These are purchases.

2) These are items that while not incorporated into the final product are used in creating the final product.

Line 38 Materials and Supplies

Materials and supplies, such as hardware and chemicals, used in manufacturing goods are charged to cost of goods sold. Those that are not used in the manufacturing process are treated as deferred charges. You deduct them as a business expense when you use them. Business expenses are discussed in chapter 8.

Line 39 Other Costs

Examples of other costs incurred in a manufacturing or mining process that you charge to your cost of goods sold are as follows. 

Containers.

Containers and packages that are an integral part of the product manufactured are a part of your cost of goods sold. If they are not an integral part of the manufactured product, their costs are shipping or selling expenses.

Freight-in.

Freight-in, express-in, and cartage-in on raw materials, supplies you use in production, and merchandise you purchase for sale are all part of cost of goods sold.

Overhead expenses.

Overhead expenses include expenses such as rent, heat, light, power, insurance, depreciation, taxes, maintenance, labor, and supervision. The overhead expenses you have as direct and necessary expenses of the manufacturing operation are included in your cost of goods sold.

4) Expenses not directly pertaining to the creation of the product are expenses. Freight in is COGS. Freight out is an expense. Supplies needed apart from creation are supplies. Postage, envelopes, paper are office supplies.