Sage 100

Does anyone have clients selling virtual versions of hard product? Client sells books and sells hard copies and downloads. Trying to decide how to cost the downloads, which aren't ""stocked"".

Are they the ""manufacturer"" or ""distributor"". Distributor will have a defined cost they need to pay, right? For a ""manufacturer"" (publisher) the cost is either 0 or the royalty payable the sale creates.

Here's what my client told me: Obviously printing costs should go to the physical book alone, but other production costs - like outside proofreading, typesetting, and editing, or any artwork/photography - should apply to both versions.In some cases, there are specific costs which apply only to a digital version - like format conversion costs, or, in the case of textbooks, outside design and programming. Since there is no inventory and no scaling production cost based on qty sold, how best to apply COGS? XXXX wants to create a virtual warehouse and keep inventory based on projected lifetime sales. Projected sales divided by costs = cogs per unit. I hate this idea. Adding a virtual warehouse and tracking virtual inventory seems like such a waste of effort. I think the same thing can be done by simply doing the same math, enter the cogs as a unit cost and then track lifetime sales on a monthly basis. If anything surpasses its projected lifetime sales, at that point the unit cost can be set to 0.

This sounds to me like more of a CPA issue than a Sage issue. My guess is that on some level there may be either a per copy royalty or if the inventory is self-generated (their IP, their labor internal) there's some type of accumulation (capitalization) of cost to digitize and a related allocation of COGS over an expected reasonable sales life - via maybe amortization or similar. I find it unlikely that they'll be able to apply COGS indefinitely unless they somehow capitalized their expenses. My ultimate guess is that they accumulate cost per item then amortize the cost over an expected life though I would strongly advise they consult their tax or accounting professional. There may also be different rules for GAAP and Tax.

I have a customer that sells similarly. They publish games and related books. They do offer downloads now. I will check with them, but they probably don't cost at more than the royalty (writer and illustrator). I'll let you know if I hear.

Here is the answer I got ""We have some items that we release both digital and physical of the same product. When we do that we collect the costs in Job Cost as we would if it was just an inventory item and split the costs between the two items except for the costs that apply specifically to one or the other, such as printing and freight in would only be a cost for the physical inventory. Creating the digital copy would only apply to the digital costs, but the costs for writing, editing etc would be split between the two. The physical inventory is cost out per item, received into inventory and the digital portion we expense in the month it is released. We calculate how many digital copies need to be sold to recover costs and after costs are recovered then all sales after that point is total profit. We normally recover costs for digital releases the first month the item is released. We don't attempt to apply costs to individual digital copies since there isn't any way for us to know how many digital copies will sell.

@GaryFeldman -THANKS!