Manufacturing Accounting Built on Real Job Costs

Indirect costs such as supervision, utilities, and equipment depreciation reach your products through a burden rate. We build it on the driver that fits your plant, whether a machine hour rate for automated lines, labor hours for assembly, or activity-based costing where setups vary by product.

Many small manufacturers still use a rate set years ago. As product mix and volume shift, that rate quietly moves margin between product lines. We review it yearly and track overhead absorption monthly.

When the physical inventory never agrees with the system, the cause usually sits upstream in unrecorded scrap, late receipts, or an outdated BOM. We run cycle counts on high-value items, book shrinkage and obsolescence reserves on a set policy, and trace each recurring gap to its source.

Standard costing sets the expected cost of a unit before production starts, covering material quantity and price, labor hours and rate, and overhead. Actual cost is what the floor spent. Standards speed up quoting, and every gap between the two is a signal.

A favorable material price variance next to an unfavorable usage variance often means a cheaper material that runs worse on the line.

Raw materials carry purchase cost plus freight-in. Work in process carries materials plus the labor and overhead applied so far. Finished goods carry full production cost. Each stage is counted and reconciled on its own.

LIFO should be a decision, not a default. It requires an IRS election, and the conformity rule means a business using LIFO for tax must also use it in the financial statements it gives lenders and owners.

Cost of goods manufactured covers what moved through production in a period, meaning materials used, direct labor, and applied overhead, adjusted for the change in WIP. Cost of goods sold covers what actually shipped. A plant building ahead of a busy season can post high COGM and low COGS in the same month, and reading one as the other misstates margin.

Every cost number downstream starts with the bill of materials. We build standard costs from your BOM and routing, include scrap and yield factors, and record rework separately. A wrong BOM mis-costs every unit built from it, and inventory, COGS, and your quotes inherit the error.

For imported materials, the invoice price is only part of the cost. Freight, duty, tariffs, insurance, and handling belong in inventory value rather than general expenses. With tariff rates changing on short notice, we allocate landed cost to each receipt so your margins reflect what materials cost to bring in.

The uniform capitalization rules require manufacturers to capitalize certain indirect costs into inventory rather than deducting them as paid. These include a share of purchasing, warehousing, and administrative costs tied to production. Businesses under the small business gross receipts threshold are exempt, but a growing manufacturer can cross it without noticing. We test your position each year and calculate the adjustment when it applies.

R&D tax credit: Process improvement, product development, prototyping, and tooling design often qualify. Most small manufacturers assume the credit is only for software companies.

Section 179 and bonus depreciation: Equipment must be placed in service by December 31 to count this tax year, so purchase timing matters.

Sales and use tax exemptions: Most states exempt manufacturing equipment and raw materials, but rules and certificates vary, and the exemption is widely under-claimed.

Tariffs and duties: Captured in landed cost so they are recovered through inventory, not lost in overhead.

• You cannot say what a job cost last quarter
• Your physical count never matches the system
• Margins swing between similar jobs with no explanation
• Inventory adjustments appear every month
• The close takes weeks
• Cash flow is hard to predict
• Your team needs controller or CFO guidance