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View Full Version : I need to adjust inv from mfg item


Coaching1311
Mar 26, 2008, 09:25 AM
I run a wood shop. I buy raw lumber and put the cost in my COGS under lumber. I then cut them down and box the finished product. I need to know how to then move my boxes into inv so I know how much I have on hand. How do I write off my sawdust as a loss?

morgaine300
Mar 27, 2008, 12:13 AM
You seem to be working backwards. Your lumber is raw materials and should not be going into COGS. COGS is where you expense items that you have already sold as finished products. i.e. Sales - COGS is your gross profit. If you haven't sold something yet, you don't have any COGS yet.

Theoretically you would have a Work in Progress account for anything you have put into making your product but that is not yet finished. But if this process does not take very long or the amount that would be in that account is insignificant, I would not worry about it. Once the product is finished, then it should be moved, with all costs involved, to a Finished Goods Inventory. That is a separate inventory from your raw materials inventory. It would contain all the materials used, labor costs and overhead costs applicable. That's where it stays until it is sold. When it's sold, the costs involved in the finished product are removed from the Finished Goods inventory and THEN put into COGS.

The only way you would ever put anything into COGS first is if you're using backflush costing, which is a method sometimes used in JIT manufacturing because it supposedly saves on accounting time. (Though for a small company, I can see other ways to save on accounting time without using this method, which I actually find to be a bigger hassle.) If that is what you're doing, you need to state so. And you'd also be putting labor and overhead into COGS, and you didn't state that you were doing that.

And you can't write off your sawdust as a loss. There's no "loss" there. It was part of the cost of the lumber, that will end up being included as part of COGS. So it's already being accounted for and you can't count it twice.