Hi There! Maybe you saw the post that my client is moving to a new payroll system.
I was talking to the vendor about account set up and he made a comment about salaries in the COGS that made me curious.
He said that some of his clients include salaries for sales people in the GOGS.
I was wondering how common that was? Is this a new trend? I include the direct cost to produce goods for sale and sales seems indirect. Am I missing something?
No. You are correct. Sales Salaries should not go into COGS; but labor to produce the product can go into COGS.
1
Don't forget overhead applications which includes manufacturing oversight (
Classifying sales compensation as COGS is not consistent with GAAP. In my mind, it makes no sense. Imagine if your company didn't produce product but acquired it from a third-party and resold it. There, the COGS is really clean: each sold product can be tied back to a single incoming SKU in your inventory. Now, it's true that your vendor's sales force cost (and G&A and profit margin) are all included in that figure, but not your internal sales force cost.
In an over-simplification (if you will...), your cost
So, whoever the sales guy was, he was overselling his product. You're not missing anything.
Perfect! I agree, not GAAP. Bad info. And that is why we should never just take the vendors word for something ... I hope he doesn't tell someone else that who doesn't know different. I will circle back around with him on this.
Absolutely not. Sales costs should never go into COGS. You will often have some administration costs that often require some analysis, but sales is always a "black or white" classification.
