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Employee cost / COGS

I am building a plan for a new start-up cake making business. There will be one employee - the owner.

Each sale will require some of the owners time buying ingredients, baking etc.

I believe the time used should be part of COGS - do you agree? I also though want to see all the owners time as an employee with NI / pension etc. If I include an element of the time in COGS I will be double counting costs I believe.

Basically a proportion of the owners time is directly related to the sale of a product and the rest is a general business cost.

How do people manage this?

1 Comment

Hi Martin, thanks for your question. I'm sorry we did not get back to you last week!

I agree that what you are describing would be double counting unless you adjusted the Employee component's salary - which would then have undesired knock-on effects on pension and NI. 

From the standpoint of making a financial model of the business, a question I would ask is - is there a financial ramification to the business of the owner's time being spent in these different ways? I am afraid I cannot offer advice on how this is treated though.

We are planning to add an option in future for specific Employee components to be treated a COGS in reports, so this may be suitable for this case in the future.

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