Flourish Costing
Flourish Costing
Capturing costs on your inventory is important for your business. Some key focuses of why costs are important are:
- Creating an accurate Purchase Order when bringing in.goods
- Inheriting the costs of these products as they move through inventory management and processing (e.g. splitting packages, carrying costs through a manufacturing run into a finished item, etc.)
- Reporting total on hand inventory valuation
- Pushing an accurate Cost of Goods Sold to an accounting platform like Quickbooks Online
Flourish represents item costs in two ways.
- Standard Costs are the costs that go on the Item Master. These costs will be the defaulting unit costs when an item is brought into Flourish. Note: This item cost is the cost that will be used to debit the Cost of Goods Sold account in Quickbooks Online as well as credit the Inventory Asset accounting upon sale of an item.
- Unit Costs or Actual Costs are the true costs of inventory of a specific item. This means when a specific non-cannabis or cannabis item is brought into the system on a Purchase Order, this unit cost will continue to follow the item or package as it is used to create new packages.
While theoretically these costs should be roughly the same, there might be a variance if there was a special deal (or alternatively, a premium) on a specific purchase order of a package or non-cannabis item. It is a good practice to revisit your cost variance of items you are shipping to make adjustments on the accounting side and/or to adjust the standard cost of an item if it is consistently different over time. The Analytics report Inventory Control Costing Variance is a great tool to track these variances.
Detailed COGS Explanation
Overview: Tracking Cost of Goods Sold
- Why are we doing this? To minimize client tax liability and defend claims in the event of an IRS audit.
- What are we capturing? Direct costs of producing inventory to support COGS deductions claimed.
- Flourish maps each item to its respective COGS, Income Account, and Asset Account in QuickBooks.
- Each component of the parent item also carries a standard cost.
- When receiving items, the standard cost can be overwritten with actuals.
- If captured, each individual package we bring in will carry its actual unit cost.
- The specific packages chosen will reflect the actual unit cost for what is produced.
- The Inventory Control with Standard Cost report shows Standard Cost (item master: $20 in this example). This report is the starting point to true-up inventory costs. We'll pull actual COGS from the Item Profitability Report over a time period. If actual COGS is different than reported standard COGS (QBO), users can make an adjustment to standard costs. There is an identical report with the Actual Unit Costs.
- The Package Profitability and Item Profitability reports show the actual cost of an item compared to the sales of that item. Users may use this cost data to update the inventory assets and standard costing.
Known Limitations:
- Accurate actual COGS is dependent on data capture at receipt.
- Labor is captured via payroll and not uploaded to Flourish at this time. Clients can use time tracking software with proper labor codes and job descriptions to deduct direct labor as part of COGS. Flourish captures who created finished goods (our “created by” audit field), which helps support claiming these labor expenses.
- At this time, costs like electricity, equipment depreciation, rent, etc. are captured outside of Flourish. Operators may use them to periodically update the standard cost in the system. Flourish captures on hand inventory levels during defined time periods, which helps support claiming these indirect expenses.
General Disclaimer: Consult with your tax advisor on the appropriate tax strategy for your business. Flourish does not offer tax advice. There are multiple valid strategies for limiting your tax liability.
