@Carl I’m going to type a detailed response (not because I want to correct you or say that you can’t do that, but because I think this will help other small makers understand ways of accounting for their costs).
The tax code is very clear that if you are treating your inventory as non-incidental materials and supplies you are still required to use a method that clearly reflects your income and ONLY the non-incidental M+S that were actually USED to make your goods that sold in the tax year are expensed/deducted. If you are simply expensing all your raw materials in the year purchased rather then the year the items you created out of those materials sold then you are not treating those materials as non-incidental materials and supplies, as required. If you see anywhere in the tax code that says a small business under say 1mil can go ahead and expense all their inventory that’s treated as non-incidental materials and supplies please share. (If you are referring to the De Minimis safe harbor election that some people were interpreting to say that you can do that, that is incorrect and has been clarified since that election was first created. Currently, it clearly states in the code that if you are accounting for Inventory as non-incidental M+S those M+S do not qualify for the De Minimis election.
When you say it “isn’t possible or feasible for for some manufacturers to cost out what was used from a bolt of fabric” that’s a prime example of when a business should be using the traditional inventory method to calculate their COGS and keeping an inventory. Businesses like that just count up what fabric is left on the bolts at the end of the accounting period and subtract that from the sum of the inventory count at last closing + new purchases.. that tells them what their cost was for the current period.
I use bolts of fabric in my sewing business. I treat my inventory as non-incidental materials and supplies. I’m able to do that and comply with the requirements easily. When I purchase a bolt or a yard of fabric I take the cost of that purchase and divide it by square inches. Let’s say my calculation tells me I paid $.10 a square inch for that bolt I just purchased. When I make an item out of that fabric I determine how much fabric I’m using. Let’s say I’m making a shirt that will require 200 square inches of fabric.. 200x .10 = 20 .. I now know that my fabric cost to make that shirt was $20. Any other raw materials and supplies that also went into making that shirt are added to that fabric cost and the total tells me what my COGS is for that shirt. That’s the amount I deduct at the end of the accounting period... whatever wasn’t used stays on my non-incidental materials and supplies list for the next accounting period and isn’t deducted/expensed until I use it, and the item it was used in has sold.
