The effect of import tariffs on a company’s inventory cost is a crucial consideration for firms when importing items. Customs duties and import tariffs are taxes the government imposes on imported products. These taxes are seen as a portion of the value of the imported goods and can change based on the kind of commodities, the country of origin, and trade agreements.

So, do import taxes included in inventory costs? Yes, they are. The Cost Of Goods Sold (COGS) calculation should consider import tariffs because they are regarded as a component of the cost of purchasing inventories. COGS, which includes the cost of materials, labor, and other expenses related to the creation or acquisition of the items, is the total cost of all the goods sold over a given period.

There are several reasons/benefits to include import taxes into the COGS calculation. The first benefit is that it ensures the cost of goods sold is appropriately represents the actual cost of purchasing the inventory. This is crucial for financial reporting since it gives a clearer view of the company’s profitability and aids in pricing and inventory control decisions.

Secondly, businesses can pay less tax by adding import tariffs to the COGS calculation. Companies can deduct the cost of items sold from their taxable revenue in many countries, which can reduce their overall tax burden. Companies can increase their deductions and lower tax obligations by appropriately accounting for import levies in the COGS calculation.

What Amounts Are Included In The Cost Of Inventory?

You have to understand that the inventory you find in import duties is not different from the ones you see in the conventional financial system. The only difference is that you will only rhyme with the content of the imported goods. The amount you see in the inventory cost is the cost of the goods purchased, the amount of discount given, transportation cost (as incurred by the owner), and any other relevant duties.

Also, in most cases, you will find costs like insurance, relevant taxes, opportunity costs, and item descriptions. Mind you, this may differ according to the item in question; hence, you might see expenses like the cost of labor incurred during processing. And if you are wondering whether there’s a cost that’s not included in the import duty inventory, we’d say yes, there is. In this inventory, you are not expected to see costs like interest or any form of borrowing cost.

But note that these costs may differ according to the items you are importing or the country you are importing from; hence, there may be slight changes, but the template is always the same.

Conclusion

Import duties should be considered when calculating COGS because they play a substantial role in the cost of purchasing inventories. This guarantees that companies can accurately assess their profitability and decide how to manage their inventories and prices. Additionally, firms can lower their tax obligations and increase their revenue by adequately accounting for import tariffs

（Writer：Dick）