Packing Materials as Cost of Goods Sold?

Posted by Carla F. on May 17, 2007, 5:11 pm

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We are going to be selling bags of firewood. Would you class the expense
for burlap bags and shipping boxes as "cost of goods sold" or just
materials?

I assume the shipping charges for shipping to customers, ebay & paypal fees,
advertising fees, barcode fees, etc., would all be considered CGS expenses
as opposed to general overhead.

Thanks

Posted by HSalim on May 22, 2007, 5:03 pm

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I would put it under COGS

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> We are going to be selling bags of firewood. Would you class the expense

> for burlap bags and shipping boxes as "cost of goods sold" or just

> materials?

> I assume the shipping charges for shipping to customers, ebay & paypal

> fees, advertising fees, barcode fees, etc., would all be considered CGS

> expenses as opposed to general overhead.

> Thanks

Posted by Laura on May 22, 2007, 6:43 pm

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> We are going to be selling bags of firewood. Would you class the expense

> for burlap bags and shipping boxes as "cost of goods sold" or just

> materials?

> I assume the shipping charges for shipping to customers, ebay & paypal

> fees, advertising fees, barcode fees, etc., would all be considered CGS

> expenses as opposed to general overhead.

> Thanks

These are not direct costs to producing your product so they are generally
booked to general overhead.

Don't forget that any eBay, Paypal & shipping charges that you pass on to
your customer on their invoice is income to your company.

Here is one definition of COGS:
http://en.wikipedia.org/wiki/Cost_of_goods_sold

Cost of goods sold
From Wikipedia, the free encyclopedia
In accounting, the cost of goods sold (also, cost of sales or cost of
revenue) describes the direct expenses incurred in producing a particular
good for sale, including the actual cost of materials that comprise the
good, and direct labor expense in putting the good in saleable condition.
Cost of goods sold does not include indirect expenses such as office
expenses, accounting, shipping department, advertising, and other expenses
that can not be attributed to a particular item for sale.

Subtracting the cost of goods sold from the amount billed when selling the
good (sales revenue) produces the gross profit on the good.

The net profit, what most people understand as the business' income or
profit, is determined by subtracting the cost of goods sold and the indirect
expenses from the sales revenue.