Hi all. So, there is no way to assign non-inventory cost to any inventory for the purpose of correct profit-margin calculation?
Goods bought - 30k USD
Goods sold - 35k USD
Storage of goods (non-inventory item) - 3k USD
Net proft - 2k USD, In Profit/Loss statement its indicated as sales - 35k, costs - (30k), storage (3k). It’s correct, but in report of inventory profit margin I see 5k revenue under this deal, it’s not actually so. Can I add non-inventory cost to inventory proft margin report?
If you read your own post you would notice that inventory profit margin is for inventory items and thus not for non-inventory items.
Thank you for your reply. I just want to try use inventory profit margin to see complete profit on the deal. So there is no way to allocate additional costs (like ad’s, storage, etc.) to this report?
Take a look at https://learn.financestrategists.com/finance-terms/inventory-profit/
The answer to your question is thus No. Inventory profit is just related to inventory item cost and sales prices. Your inquiry is about Gross Margin which is the difference between revenue from sales and cost of goods sold that also may add costs such as storage, labour, etc.
@vdebrist, I moved your post to a new topic, because it really was unrelated to the other thread about non-inventory items where you posted it.
I think @eko may have misread your post. He addressed the question of profit margins on non-inventory items. But you asked about adding non-inventory costs to inventory items. That is actually quite feasible. There is a Guide that illustrates the principles: Add freight-in to inventory item costs | Manager.
That Guide is specifically about adding freight-in costs to the costs of inventory items. But the same thing can be done with other costs so that the average cost of an inventory item represents the true cost of obtaining it. For example, not only incoming shipping but insurance, storage, customs fees, advertising, and so forth could all be added. (I emphasize the word could because, although the program will allow it, much of what you list as desirable additions would not be correct accounting. You need to be aware of what local accounting regulations allow to be considered. Ongoing storage would probably not be allowed, but should be posted as an operating expense. And advertising might be classifiable only as a marketing expense, not as the cost of inventory.)
All that aside, non-inventory costs can be added to any inventory item simply by posting the purchase of them to the inventory item while leaving the quantity blank (not zero).
You also wrote about “deals.” Understand that the Inventory Profit Margin report has nothing to do with any “deals.” It is a report of the excess of sales income from an inventory item compared to the average cost of that inventory item at the moment of sale.
@eko was right; you cannot add non-inventory costs to the report itself. But you can add non-inventory costs to inventory items’ average cost. It is important to understand, however, that the average cost of inventory is meant to be the cost you incurred to obtain the goods, not your expenses for storing, insuring, advertising, and selling them. Those are all operating expenses.
@Tut thank you for complete answer. Before you wrote this I have tested it in a new business. If I add non-inventory cost to any inventory - in P&L statement such costs are indicated as cost of goods sold, not as an operational costs, and it’s wrong for reporting. I think that if I want to see P&L on each deal, I need to extract inventory profit margin statement and all detailed operational costs in spreadsheet and than merge them. In manager it will be impossible. Or I have correct report, or I have incorrect report and correct P&L on deals. First is more important, of course.
That is true as far as your statement goes. The average cost of an inventory item multiplied by the quantity sold appears as cost of goods sold when you sell it. But I cannot imagine why you say that is wrong for reporting. That is standard accounting, and it is how Manager reports cost of goods sold (in the Inventory - cost account).
@vdebrist, I don’t know what you mean by “deals,” which you keep referring to. Are you referring to the complete life-cycle profitability of an inventory item from the time you purchase it until you have sold it, including all related storage and advertising costs? That’s impossible to calculate in an average cost inventory system unless items are purchased for a specific customer and all are sold to that customer before any more are purchased. And that would still not be recognized as an inventory profit margin by any accounting standard. That’s just something you conceived because it might be interesting to you.
Or are you referring to a contract with a customer on which you want to calculate total profitability, including the profit on inventory items delivered on the contract? That’s also just about impossible to calculate under any accounting system, because it is difficult to allocate all overhead and administrative costs proportionally to contracts.
Or are you referring to something else?