USA Labor COGS

[Rusty_Shackleford]

I have what might be a dumb question but the answer eludes me so I'll ask it here. If labor is a component of COGS would you be over expensing labor as products are sold while during the month booking entries to expense payroll? Seems to me like that would be double dipping your labor expense

 

[kirby]

Some labor cost that can be directly identified as a product cost is moved out of (journaled) Wages Expense and becomes a part of the cost of the item sold. So there is no double counting.

 

[Weygandt]

I have what might be a dumb question but the answer eludes me so I'll ask it here. If labor is a component of COGS would you be over expensing labor as products are sold while during the month booking entries to expense payroll? Seems to me like that would be double dipping your labor expense

I have to agree with Kirby's reply, but would like to expound on it. As a long-time managerial accountant, your question has brought into light other questions. Is this a manufactured product? If so and you have several departments and are doing departmentalized P-n-L's, then you would need to do as Kirby replied and identify the labor associated with the goods sold; then adding all departments together and separating the non-associated labor into admin. However, if this is just a buy and sale, then the labor should not be taken into consideration of COGS, as this would skew the margin that management wants to see and make decisions. Labor cost of items of this nature are always viewed separately and weighed as a percentage of sales to make determinations. Quick example: If I have a coffee maker in the kitchen department of my retail store that uses milk, then when I use a gallon of milk from the retail department of my store, I would need to identify the cost of that milk taken from the retail department and transfer it to the kitchen department, removing it from the retail department. Of course, if I did not remove it from the retail and transfer it to the kitchen, while adding the milk to the cost of your kitchen product, then for the consolidated PNL, you would have double dipped the cost of your milk obviously overstating cost of your retail products and understating margins.

 

[Weygandt]

I have to agree with Kirby's reply, but would like to expound on it. As a long-time managerial accountant, your question has brought into light other questions. Is this a manufactured product? If so and you have several departments and are doing departmentalized P-n-L's, then you would need to do as Kirby replied and identify the labor associated with the goods sold; then adding all departments together and separating the non-associated labor into admin. However, if this is just a buy and sale, then the labor should not be taken into consideration of COGS, as this would skew the margin that management wants to see and make decisions. Labor cost of items of this nature are always viewed separately and weighed as a percentage of sales to make determinations. Quick example: If I have a coffee maker in the kitchen department of my retail store that uses milk, then when I use a gallon of milk from the retail department of my store, I would need to identify the cost of that milk taken from the retail department and transfer it to the kitchen department, removing it from the retail department. Of course, if I did not remove it from the retail and transfer it to the kitchen, while adding the milk to the cost of your kitchen product, then for the consolidated PNL, you would have double dipped the cost of your milk obviously overstating cost of your retail products and understating margins.