"how can the expenses be deducted as charitable deductions?"

There is no Instead Of, unless this entity is a C Corp and files 1120? Because only a C Corp can even list donation on the tax return.

You don't want this as charity, otherwise. That would be passed through to the 1040, which has limitations on charity deductions.

That's why you are being told to treat it as part of regular operations and COGS. You just happened to "sell" it at $0.