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Accounting For Wholesale Apparel Company Cost of Goods Sold

I am looking for what should and should not be included in COGS. We are a small wholesale apparel company that imports inventory and picks and packs at the warehouse. Should we allocate some of the overhead cost of the warehouse? Should freight in or our be included? What all should be included in our COGS?



Mark Sutherland
Title: CFO
Company: Profit By Design CFO & Controller Servic..
(CFO, Profit By Design CFO & Controller Services) |

Freight in is definitely a product/COGS cost. There is debate about warehousing costs as product costs. Technically, I believe that receiving costs are also product costs. The warehousing/storage and pick/pack costs would be a selling/period cost, in my opinion. In other words, the costs to "position" the products for sale are product/inventoriable costs. The activities and costs associated with selling the products are period costs.

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

The problem lies in whether you are talking Financial statements for bank/lender/audit or managerial.

They are quite different and can work under different rules.

Obviously, those who read both need a crosswalk to avoid confusion.

(Sr. Manager, Accounting & Finance) |

It does depend on what you are trying to accomplish. Are you trying to prepare GAAP statements or are you trying to do an internal analysis for company leaders?

I presume its GAAP since you are on here asking. GAAP requires that certain inventory costs be capitalized and expensed as the inventory is sold.

Some portion of warehouse costs should be allocated to COGS. Determine an O/H allocation method that is fair. Maybe based on the sq. footage associated with assembling the product so that it is ready to be sold.

Charges for freight-in are almost always classified in COGS.

Charges for freight-out could be either (generally more so a selling expense so not COGS). I’ve seen it done both ways but the key is to be consistent in your method.


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