Accounting standards hardly specify which type of expenses should be recognized under cost of sales.
IAS 2.38 “The amount of inventories recognized as an expense during the period, which is often referred to as cost of sales, consists of those costs previously included in the measurement of inventory that has now been sold and unallocated production overheads and abnormal amounts of production costs of inventories” – here it says cost of inventories sold are recognized under cost of sales.
Also note 2.11 “The costs of purchase of inventories comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase”
LCs charges are directly attributable to the acquisition of the materials and could be included in the material cost.
Note that there are mentions about expense recognition in the other standards such as;
IAS 18.19 "Revenue and expenses that relate to the same transaction or other event are recognized simultaneously; this process is commonly referred to as the matching of revenues and expenses"
Conceptual Framework 4.5 "Expenses are recognized in the income statement on the basis of a direct association between the costs incurred and the earning of specific items of income. This process, commonly referred to as the matching of costs with revenues, involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions or other events; for example, the various components of expense making up the cost of goods sold are recognized at the same time as the income derived from the sale of the goods."
Even if you don’t take it under material cost you can include it under manufacturing overheads.
As per general product costing principles, cost of production can be recognized as follows:
1. Direct material cost
2. Direct Labor
3. Manufacturing Overheads (fixed or variable)
Manufacturing overheads generally include indirect labor (Eg. Supervisor salary), indirect material (Eg. Machine lubricants) and other indirect manufacturing costs such as machine depreciation, factory premises rent, factory property insurance, electricity, freight and transportation, or any expenses that are essential to keep factory operating.
You may include LC charges as a manufacturing overhead and include under Cost of Sales as they are generally associated with freight/transportation and include in the cost of sales.
What I am trying say is that there is nothing in terms of standards prohibiting you to include LC charges under Cost of sales but what is important is that you follow a uniform policy on LC charges.
