We built a customer owned tool with spare parts that we have in our spare parts inventory. We expensed the cost of building this tool and did not record this in COGS. I am challenging whether this is the appropriate treatment. I believe that the COGS should record the cost of the spares used to build this tool. What are your thoughts?
Customer Owned Tool Built with Spare Parts. COGS = $0??
Answers
If the spare used out of the existing inventory, yes COGS should be booked a equivalent to the value of the spares used.
As a result of use of these spare parts, the inventory at the period end will be reduced and that is a COGS.
Let me know if this helps
Filed Under:
Accounting