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My inventory value includes freight-in from China. We chose to air freight an inventory order. How should I record that extra-ordinary cost?

The products we sell usually arrive by ocean freight. The cost varies from delivery to delivery but it varies within a standard range. We do not use a perpetual inventory system. I keep track of the cost of goods available for sale and record COGS based on the average inventory value for each item. We made the decision to air freight product as a customer accommodation. The cost was rather enormous! That freight does represent the cost of those items available for sale but should (or could) that exception be handled differently?

Answers

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Yes. My view is that the excess cost of freight should not be part of regular COGS but as a separate line within COGS (so that your gross margin is still actual)-this is from a management reporting perspective, not GAAP. And I would track it under that customer so as to avoid distorting other customer profitability analyses.

Anonymous
(Manager of Admin and Operations) |

Thank you for your response. Good suggestion to track it to the particular customer.

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