Which of the following is NOT typically considered a startup cost for a new contracting business?
Correct Answer
B) Cost of goods sold for completed projects
Cost of goods sold relates to ongoing project expenses, not startup costs. Startup costs are one-time expenses incurred when establishing the business, such as licenses, initial insurance, and setup costs.
Why This Is the Correct Answer
Cost of goods sold (COGS) represents the direct costs of materials, labor, and subcontractors used to complete specific projects that have already been delivered to customers. This is an ongoing operational expense that occurs during the normal course of business operations, not a one-time expense incurred when starting the business. COGS only exists when you have completed projects and delivered them to clients, which happens after the business is already established and operating.
Why the Other Options Are Wrong
Option C: Business license and permit fees
Monthly rent for office space, when paid upfront (such as first month's rent plus security deposit), represents a startup cost necessary to establish your business location before operations begin.
Option D: Initial insurance premiums
Initial insurance premiums are startup costs because you must obtain general liability, workers' compensation, and other required insurance coverage before beginning operations.
Memory Technique
Think 'COGS comes AFTER CASH' - you can only have cost of goods sold after you've sold goods and collected payment, which means your business is already running.
Reference Hint
Florida Business and Finance for Contractors - Chapter on Business Formation and Startup Costs
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