If you report equipment costs as part of your Cost of Goods Sold and they aren’t rising and falling with sales, your equipment costs represent more of a fixed than a variable cost for your business. This is okay as long as the equipment cost as a percent of sales is within range of what you planned it to be.
It can be a costly problem if the percent of equipment cost to net sales is rising faster than sales. You protect this from happening by first planning for your equipment cost by month, followed by monthly variance reporting of actual to planned results. If you are trending high, you have a readily identified business area to improve.
Overview
Fixed assets, other than land, buildings, and vehicles owned or rented by the company and used in business operations, are equipment. Examples include devices, machines, equipment, and tools.
Equipment costs included within COGS are the direct operating costs of the equipment attributed to the manufacturing of a product, delivery of a service, or completion of a job. These costs include fuels, lubricants, coolants, cleaning agents, small tools, and equipment accessories that are directly charged to the production of a product, the completion of a job, or fully allocated in direct costs.