Just to re-iterate Shaun's point, they are hiring the skips not purchasing (just that you have named the Nominal 'purchase of skips'), if they are hiring, I would agree cos, perhaps stick in 5002 miscellaneous purchases unless a significant amount?

Hi Lisa,
I would agree with what you have said you are doing already by putting the hire costs of the skips as cost of sales.

Bev.

I think on reflection I would tend to agree with our hedgehog! Out of interest, Sage have a Chart of Accounts for builders but they haven't thought of 'skip hire' as a separate nominal code!

I would also agree with semsley also as skip hire is not relating to materials ie it is not
say opening stock plus material purchases less closing stock of materials equals cost of sales
you could not include skip hire in a stock valuation could you

Hi Chris,

Although this does seem somewhat of a grey area I'm with Sheila and David.

To me it seems that the skip hire to a builder would be the same as a distribution cost to a mail order company, so to me it seems to be an overhead rather than a direct cost.

cheers,

Shaun.

Hi Bill,

this one's an interesting debate.

A crane or cement mixer would be directly necessary for the actual construction but hire of a skip assumes a constructive obligation to clear up the site which would be an overhead rather than a direct cost.

I think that this is just one of those that could be argued either way and both sides could justifiably win the argument.

In either instance the profit / loss for the year would remain the same even though the gross profit figure would of course be different.

Taking the above to the analogy of the Widget Machine Bill, the Widget machine is actually manufacturing the widgets. A closer comparison would surely be with the hire of bins to store wastage from the Widget machine.

I feel that I could represent a client who chose either path as I can see both arguments on this one.

talk later,

Shaun.

Morning Bill,

sounds as though the hypothetical firm should be using Activity Based Costing to determine their bonuses.

bear with my answer here as I'm writing it as I think it and I don't know how it's going to turn out at the end of the response yet!

The difference between factory admin staff and a skip is that the factory admin staff would exist regardless of the work level but the skip hire exists only to serve an immediate purpose assumed to be the removal of waste materials.

Whilst such seems to be a direct expense it is not a necessary part of the construction process which would render it as an overhead. All be it an overhead peculiar to the specific contract.

So, I think that we're pretty much in agreement that the skip would not be classified as a prime cost so it's just a matter of where the expense of the indirect costs lie.

The cost would not have been necessary were the client not working on the development which does in fact make it a directly attributable indirect cost (Just to reiterate, it cannot be a direct cost as it is only a constructive obligation not a necessity of the construction).

For the ABC (and bonuses) that makes it part of the cost attributable to production.

For the financial statements though, as it's not a direct cost I'm still seeing it as an expense rather than cost of sales.

But at the same time I can see completely why one would include it in cost of sales especially if there turns out to be a salable by-product. So as I've said before I think this is an area where we could both be right and neither of us wrong.

Whichever method was chosen if it's a material expense it sounds like it needs a quick note in the accounts to emphasise company policy on presentation of expenses would be required.

right, thinks that's sitting at 30 all at the moment. Your serve Bill.

Shaun.

Hi Rob,

I'm with you on this one!!!!! Where the tablets!!!

For my opinion, I had a client who hires skips sometimes and I have always put them as Skip hire under expenses and the accountant didn't query it or complain that it was inthe wrong bit. So I assumed it was correct.

cheers
A

I'm calling a fault, Activity Based Costing, over my head  but I will now have to find out more!

Do you know what I think we've been saying the same thing.

"....... does in fact make it a directly attributable indirect cost (Just to reiterate, it cannot be a direct cost as it is only a constructive obligation not a necessity of the construction)."

And I agree that some costs may be apportioned or totally posted to an overhead expense, depending on circumstances.

I must admit that I got embroiled in the technical debate, and lost sight of my original answer to Lisa Jo's question, which was to classify it as a direct expense within Sage.

I think where I got confused was that you agreed with Shiela and Dave but then added that you would classify it as an overhead not an direct cost

The structure of Sage isn't flexible enough to create an ideal breakdown if a company makes something and you have a choice of either direct expenses or overheads. When I said direct expenses, I meant in relation to the Sage CoA (As per Sheila and Dave), and to use a nominal code in the 6xxx range, which is outside the range of costs of sale which come under the Purchases heading . I think you picked up on me classing it as a direct cost in terms of an ideal manufacturing account.

Enjoyed the debate though and I now have something else to look up (Activity Based Costing)

Bill

Did that make sense?

Thanks for all your help guys, the best about Sage is that as long as I keep these skips under their separate nominal code the accountant can "sort it out", us bookkeepers just have to have the sense to understand what it comes under. Its great to see things from an accountants point of view & I hope this thread helps others with the same problem, Ill have to think of another "good" questionable debate.

Having worked as an auditor and accountant in the past, I would agree that really it doesn't matter whether the skip hire is posted as a cost of sale or direct expense, it would only be noticed if it materially affected the gross profit and if it did the accountant would just move it for the purpose of the financial statements, the important thing is consistency.

Carole

It's great when old threads are revived. I'd forgotten about the certifying of accounts "there or thereabouts."

Surely the key to all of this is the fact that the OP did say in her second post that the skips were built into the quote - and therefore by definition billed to the customer - and so have to form part of the cost of sales - whether that be a 5000 or a 6000 code is maybe not all that relevant as they will fall in to the GP - but they most definitely aren't a 7000 code

Now if the skip sat in the yard for the men to offload the contents of their van into, and for the office waste paper basket to be emptied into I'd maybe be looking at a 7000 code......7801 renamed as waste disposal.......?