ok thanks I am waiting.
I think what I need clarification on is what should be included in calculating the Gross profit margins.
hi are you sending a reply as i haven't had any just yet ?
Ashley, thank you for your patience
In a retail business for example:
Classification of costs
Other direct costs
Freight in Receipt of goods Handling charges Storage of goods in a warehouse before they are transported to the shop for sale Cost of transporting the goods to the shop Packing of the product to enable the customer take the goods home ( mind you the packaging has a logo on it)
If these costs are associated with transportation of good to point of sale then I would incluse them as other direct costs for Gross Margin calculation otherwise they are overhead costs within distribution costs
Delivery vans cost Petrol for the delivery van
I hope this is helpful and answers your question.
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so are you saying that any costs that we incur before the goods arrive at the shop should be included in the cost of sale ?
some of the goods are sold from our warehouse and transported directly to the customer ??
Just being careful here about the storage costs ?
The van is used both for delivery of goods to the shop and delivery of goods to customers...
Ashley, thank you for yourreply.Where you have costs that would fit in more than one catergory/classification then you may wish to consider apportionment of these into other direct costsdistribution costsIt all depends on the degree of accuracy you want in your costings for GM analysis.You may come to a view that 40% of the van costs are transport from warehouse to shop for resale and 60% relates to delieries direct to customer (distribution costs).I hope this is helpful.
so are you saying definitely that the storage costs should be COGS
our shop is not big enough to contain all the stock for sale so some it has to be held at the warehouse - what is the definitive answer because IAS 2 doesn't really help so much
Ashley, thank you for your reply.
A simplified definition of cost for inventory/gross margin analysis
Cost includes purchase cost and any cost necessary to bring inventory (stock) to its present location and condition. These costs include direct costs, conversion costs and other costs such as transportation and handling charges.
General and administrative costs which cannot reasonabely be attributed to the cost of inventory are not included. Similarly, selling and distribution expenses, storage costs should not be included in the cost of inventory.
If need of storage space is paramount to convert the goods before they can be sold then I would be inclined to include them as cost of sales.
General storage costs are part of overheads.
I hope this is helpful.
The goods need to be stored at a certain temperature otherwise they will no longer be fit for sale. also some of the goods are stored in bond and later cleared duty paid before they can be sold ...
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I am sorry that i have not rated your answer just yet. I do not feel fully satisfied with the responses i have received perhaps because i am still confused as what you are stating is what i have read on the internet but i am looking for a more detailed explanation.
when i read ias 2 if i was dealing with a manufacturing company i will not have any problems at all determining what falls into cogs and what doesn't to work out the gross profit margin. but as this is a situation where the goods have be produced already (wines) and are just being purchased from different sources it is difficult to ascertain what the COGs is. If i were to leave some of the expenses out i feel that the Gross margin will be a lot higher than it should because to me it appears that these expenses have been incurred in order to sell the product... so i need to understand it better.
Freight in i know is automatically added to the purchase price.
But where do you draw the line... is freight in only freight from the supplier to us or freight from the warehouse to the shop...
storage will normally be a straight overhead as rent but if these wines are not stored in those conditions they are a write off ! But again one can argue that the shop which has the right condition does not have enough space that is the reason we have to hire the storage facilities....
what about the fans ... hired to keep the wines in the right condition before sale...
also we have a sales force of about 12 staff who are paid only on commission. so they are paid only when they well something... is this part of cogs or should be recognised as overheads under gross wages..
so the conclusion we are drawing is my gross margin figure should be:
Add Freight In
Add RHD charges
Add Packaging costs for bottles going out ( i would have thought this is selling and distribution)
Add Storage charges ?? ( not so sure about this because it looks like an overhead)
Add Charges for transportation of goods to the shop( this looks like a selling costs )
Less closing stock
I notice you have viewed my last response to your question on classification of expense headings for calculation of COGS (</spanCustomerLast Viewed on 09/10/2014 at 12:43).
Just checking to see if you have any issues relating to your question that I may not have addressed. Please let me know if I can be of further assistance.
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if the goods are already in the present condition and location in the warehouse how can the warehouse costs be a cogs ?
could you quote me an example of how a retail company treats their storage in their financial accounts for me to me certain about this ?