Monthly Cost Attribution & Reclassification Standard

Index

1. Purpose
2. Core Accounting Principle
3. Monthly Ownership and Scope
4. Veonics Usage Attribution
5. Cross-Channel Labor
6. Sales, Marketing, Samples, and Sponsored Events
7. Customer COG Versus Internal or Promotional Use
8. Other Cross-Channel Costs
9. Month-End Close Process
10. Internal Revenue and Management Allocation Controls
11. Relationship to Classes and RevRec
12. Management Reporting Objective

Purpose

During normal operations, a cost may first be recorded through the department, Item Code, inventory account, or COG account that purchased, stocked, produced, or supplied it.

At month-end, the actual use of that resource may show that the cost belongs to another operating channel or should be moved out of COG entirely.

This standard gives Nick and Finance a practical process for identifying and reclassifying those costs so Gross Profit and operating expense reporting better reflect how Company resources were actually used.

Veonics Usage Attribution is expected to be the largest recurring allocation initially, but the same framework applies to cross-channel labor, internal samples, sponsored events, promotional use, and other identifiable activity.

Core Accounting Principle

At month-end, ask:

What business activity actually consumed or benefited from this cost?

The final accounting treatment should follow the economic use of the resource when the amount is meaningful and can reasonably be identified.

Do not create unnecessary accounting complexity for immaterial amounts. A formal materiality threshold has not yet been established.

Decision Rule

• If the resource was consumed to fulfill customer revenue, it normally remains in the appropriate operating COG.
• If another operating channel consumed the resource to generate its customer revenue, consider reallocating the cost to that benefiting channel.
• If the resource was consumed for Sales, Marketing, samples, sponsorships, demonstrations, or another non-customer activity, it should generally move from operating COG to the appropriate operating expense account.
• If the resource was not consumed, such as temporary use of a reusable Company asset, do not expense the entire asset simply because it was used by another department or at an event.

Monthly Ownership and Scope

Nick will perform or coordinate this review as part of each month-end close.

Finance will make or approve the accounting entries.

The process should be repeatable, documented, and based on actual or reasonably supported cost.

Customer selling price should not be used as the amount reclassified.

Veonics Usage Attribution

Production uses the Veonics® platform to provide BAAS and other Production fulfillment services.

Veonics incurs software platform, hosting, labor, infrastructure, support, and operating costs that make that Production activity possible. Production should therefore not receive the economic benefit of Veonics platform usage at no internal cost.

At month-end, Nick should calculate the approved Veonics Usage allocation using the current management-approved methodology.

The objective is to give Veonics economic credit for internal platform usage, assign an appropriate platform usage cost to Production, and improve management Gross Profit reporting by channel.

The rate or methodology may change over time and should be maintained separately from this standard unless formally approved as a fixed policy.

This is an internal management accounting allocation and does not change customer pricing.

Cross-Channel Labor

Employees may occasionally perform meaningful work for an operating channel other than the one where their normal labor cost is recorded.

Example

A Systems technical support employee spends 20 hours supporting Production on a large rebadge project.

If the work is directly attributable and meaningful, the associated labor cost should be reviewed for reclassification from Systems to Production.

The amount should be based on actual or reasonably supported labor cost, not the employee's customer billing rate.

This principle can also apply when Production labor supports a Factory project, Veonics technical labor directly supports another revenue-producing channel, or another operating team temporarily performs identifiable project work for a different channel.

Incidental conversations, brief assistance, and immaterial time do not require constant reallocation.

Sales, Marketing, Samples, and Sponsored Events

Internal promotional use changes the economic purpose of a cost.

When Sales or Marketing requests badges, cards, kits, supplies, or other materials for trade shows, demonstrations, prospect meetings, sample packs, campaigns, or sponsorships, those costs should not remain in customer-related COG merely because Production or Systems originally supplied them.

Internal Samples

If Production creates 200 sample badges for a trade show, the actual consumable cost should generally be reviewed for reclassification from Production COG to the appropriate Advertising and Marketing Expense account.

Sponsored Events

A sponsored event may involve Production-printed badges, blank cards, magnetic bar sets, ribbons or laminates, freight, other consumable supplies, and reusable Company equipment.

Consumable and identifiable out-of-pocket costs used for the sponsorship should be reviewed for reclassification to Advertising and Marketing Expense, Events.

Reusable Assets

If a printer, laptop, or other Company asset is taken to an event and later returned to service, the full value of that asset should not be moved to Advertising and Marketing Expense.

Only an actual incremental or consumed cost should be considered, such as consumables, event-specific freight, or damage and repair attributable to the event.

Do not create an equipment usage charge unless Finance later approves a specific methodology.

Customer COG Versus Internal or Promotional Use

Resource Use	General Treatment
Used to fulfill customer revenue in the originating channel	Remains in that channel's COG
Used by another channel to generate customer revenue	Review for reallocation to the benefiting channel
Used for Sales, Marketing, samples, sponsorships, or promotion	Review for reclassification to the appropriate operating expense
Reusable asset temporarily used elsewhere	Do not expense the full asset value
Unclear or unusual use	Finance review before posting

The purpose is to report the cost where the economic activity actually occurred.

Other Cross-Channel Costs

The same principle applies to future situations that may not be specifically listed in this standard.

Examples may include one department supplying inventory to another, direct project labor performed for another channel, customer pilots provided at Company expense, goodwill or promotional services, internal training materials, warranty or replacement activity, internal software or platform usage, and project-specific freight.

Do not create a new rule for every unusual transaction.

Start with the core question:

What activity actually benefited from or consumed the cost?

If the answer or accounting treatment is unclear, Finance should review it before posting a reclassification.

Month-End Close Process

Nick and Finance should complete the following review each month.

1. Calculate Recurring Allocations

Calculate Veonics Usage using the currently approved methodology.

2. Review Known Cross-Channel Activity

Identify significant projects where labor, inventory, supplies, Production services, or other resources were used outside their normal operating channel.

3. Review Internal and Promotional Activity

Identify samples, trade shows, sponsorships, demonstrations, and other non-customer activity that may have initially flowed through operating COG.

4. Determine the Economic Owner

Determine which operating channel or operating expense actually benefited from the cost.

5. Calculate Supported Cost

Use actual cost or another Finance-approved allocation method.

Do not use customer selling price.

6. Document the Adjustment

When applicable, document the month, originating department or channel, benefiting channel or Expense account, project or HubSpot Ticket, quantity of materials consumed, labor hours, calculation method, dollar amount, preparer, and Finance approval.

7. Post the Approved Adjustment

Finance should post or approve the necessary QBO Journal Entry or other approved accounting transaction.

8. Fix Repeating Problems

If the same reclassification occurs repeatedly, determine whether the Item setup, purchasing process, HubSpot Ticket workflow, or accounting configuration should be changed so the transaction is classified correctly earlier.

Recurring process problems should become an EOS Issue when appropriate.

Internal Revenue and Management Allocation Controls

Reallocating a cost is not the same as creating external revenue.

Internal transfers between Veonics, Systems, Production, and Factory do not create new customer revenue for eXpress badging®.

Any model that records internal revenue and offsetting internal COG must be specifically approved by Finance and CFO Hub because the operating channels are part of one legal entity.

This is particularly important for Veonics Usage Attribution.

The management objective is accurate channel profitability, not artificially increasing Company revenue.

Relationship to Classes and RevRec

This standard does not replace the existing QuickBooks Class Assignment Standard.

The four operating Classes remain:

VEONICS | SYSTEMS | PRODUCTION | FACTORY

Shipping follows one of those four Classes.

A complete operating Expense Class allocation methodology has not yet been developed, so this standard focuses on cost attribution and GL reclassification during month-end close.

Revenue Recognition remains a separate accounting standard.

RevRec asks: When is revenue earned?

This standard asks: Where should the economic cost be reported based on who or what consumed the resource?

A transaction may be affected by both standards, but they solve different accounting problems.

Management Reporting Objective

The goal is not perfect cost accounting to the penny.

The goal is materially better management reporting through a process that is consistent, understandable, repeatable, supportable, and practical for a company of our size.

Leadership should be able to trust that Gross Profit by Veonics, Systems, Production, and Factory reasonably reflects the resources each channel actually consumed.

Likewise, costs incurred for Advertising and Marketing, events, samples, sponsorships, and other non-customer uses should not remain buried in customer COG simply because that is where they originally entered QBO.