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PDtax
PDtax, CPA firm owner
Category: Tax
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Experience:  32 years tax experience, including four years at a Big 4 firm.
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for a jewelry design business can you expense off shipping

Customer Question

for a jewelry design business can you expense off shipping costs for materials used to make inventory, prior to selling a the materials? when we receive materials, those materials could be used to make several individual pieces, so trying to allocate a percentage of the shipping for COGS is virtually impossible.
items in question are listed below:

shipping charges for materials
education or workshops
marketplace fees (monthly or per item listing fees)
paypal fees
Submitted: 7 months ago.
Category: Tax
Expert:  PDtax replied 7 months ago.

PDtax :

Welcome to the site. I will be helping you today.

PDtax :

The shipping out should be allocated to the inventory, and costs recognized when the items are sold.

PDtax :

Instead of allocating the exact dollars, manufacturers making a large number of inventory items create a standard and allocate an amount ot inventory during the year, called standard costing.

PDtax :

At year end, the costs associated with the standard are compared with actual, and the difference reported as gain or loss on the income statement.

PDtax :

A simple example: 5,000 inventory items that cost $1 each need to be sent out for metal plating, which generally costs $.15 each. Set that as the standard, and allocate a standard overhead cost to each item. So, your standard cost is now $1.15 each.

PDtax :

When the bill for plating comes in for $600, you charge that amount to the plating standard cost, and your year end income statement will reflect a $150 gain on plating, but inventory will reflect standard costs for pricing and sales.

PDtax :

Costs such as education or workshops are administrative costs and generally not allocated to inventory unless you are required to follow UNICAP (uniform capitalization).

PDtax :

PayPal fees are a bank service charge not allocated to inventory at all.

PDtax :

Thanks for asking at Just Answer. I'm PDtax.

Expert:  PDtax replied 7 months ago.
Hi Dan,

PDtax from Just Answer. Please advise if you need anything more regarding my work for you. If I have answered your questions, please log in and provide positive feedback to close out your question.

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