Sage 100

Allocating Warehouse costs to inventory items. I have a Sage 100 client with a central warehouse that stores inventory items for four grocery stores. Had an interesting discussion with them about how to allocate the cost of running their warehouse to the stores/items. Presently, this is done as a simple percentage of cost. However, this is not really fair or accurate because 1) different items take up different amounts of cubic space per dollar. For example a case of expensive liquor uses the same amount of space as a case of bottled water. And, 2) different items spend different amounts of time in the warehouse. Should Item A which spent 1 day in the warehouse get the same cost percentage as item B which sat there for 6 months? My question: How do most companies address this problem?

Take the expensive liquor. Less time in the warehouse reduces their allocated cost. Win-Win.

The short version is, this is a question for their CPA. That said, the IRS doesn't care a whole lot about allocations like this so long as they are consistent. Whatever they use today can't be changing every other month. I could tell you stories of partners and division presidents nearly coming to blows over this very question. The bottom line is, there is no such thing as a ""fair"" or ""right"" way to do such an allocation. My thought is, they just have to pick one and go with it. With the blessing of their CPA, of course, assuming that even matters in their case.