average shipping cost in cogs
When you add the shipping costs to inventory, the process is referred to as capitalization and it gives you a better representation of cost of goods sold. Letâs take a look at a brief example of how to account for shipping costs. Assume you own a retail business that buys and resells widgets. You buy the widgets from your supplier at a cost of $5.00 each. You order 100 widgets and are charged $500.00 plus $50.00 for shipping the widgets to your warehouse.