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Which costs belong in manufacturing inventory and cost of goods sold?

Short answer

Manufacturing costs generally include materials, production labor and allocable factory overhead. Selling and administrative expenses need separate classification. Tax capitalization rules and applicable exceptions must also be considered.

Example

Production-worker wages and factory costs may belong in product costs, while sales-office expenses require separate treatment.

What to review

Cost categories, payroll allocation, production records, work in process, finished goods and the adopted accounting method.

Official source: www.irs.gov/publications/p538

Related service: Automotive Manufacturing Accounting

This answer is general information, not advice for your specific situation. Tax rules change, so please contact us to review your facts before acting.

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