Xdata
White Papers

"Xdata solutions’ Rules-Based Product Configurator is designed with both ease of order entry, accuracy in product selection and timeliness of manufacture. From the beginning we felt Customer Order-Entry must be an easy-to-use system. It is designed for clerical level data-entry that is inherently coupled with intricate Engineering considerations (rules)."
- see White Paper #3 below:
 

1.  Distributed Manufacturing
By Charles L. Gaby, CPIM

2. Understanding Manufacturing Cost
Accounting    By Reid Biberstine


3. Custom Made Furniture
By Charles L. Gaby, CPIM

 

4. Understanding Rules-based Configuration
By W. Reid Biberstine

5. Paperless Office Automation - eDistribute
By W. Reid Biberstine
 



 

Understanding
Manufacturing Cost Accounting:

Preface: Technology can be a very powerful investment. It was true yesterday, and it’s true today.
By W. Reid Biberstine                                                       

To understand the differences in accounting methodology, it will be easiest to review the challenges, and then address how cost accounting practices
address these challenges.

One of the ways to iden-
tify the effectiveness of a
costing methodology is to
consider the type and size
of a business ...and simply
look at the tools being used
to calculate profitability. 
Most companies have com-
puter systems that handle sales orders, A/R, A/P, G/L, and Inventory.  If these systems are properly designed, installed, and completely integrated …calculating profitability, COGS, and inventory value can be as simple as executing a single keystroke.

Many companies with poorly designed or outdated systems spend dozens of man-hours every month counting inventory, deciphering cost data, calculating the value of materials received into stock which have not been paid for, and using spreadsheets to accomplish the tasks.  When it’s all done, (typically days, or weeks after the period ends) they have wasted a ream of paper and built macros in spreadsheets to determine if the period was a profit or a loss.  If this approach and these tools indicate a profit, then management is happy …but they don’t know why.

Spreadsheets are a cumbersome tool to maintain and employ for these functions.  If a company is using spreadsheets for these purposes, they are using the wrong tool.

Managements often focus on production machinery, tooling, and distribution equipment, as tools that can be replaced, or upgraded, to reduce costs.   Accounting tools and their efficiency can be much more important, but it is much easier to look at a drill press and understand its effectiveness.

Replacing an old manufacturing machine can reduce labor costs, improve output, and reduce waste, while replacing old accounting practices can do that ...and more!  Management quickly accepts that new machinery takes time and money, and recognizes that if implemented correctly, it quickly pays for itself many times over.  Implemented correctly, a new accounting methodology produces even better returns on the same dollar investment.

Costing methodology is an important factor in all businesses, however, companies that Manufacture products face more perplexing challenges because products in inventory usually contain purchased material, purchased labor(outside processing) and added labor.  Inventory is constantly turning over as products are sold and inventory is refreshed with new stock.

The true and exact cost of inventory fluctuates as purchased material prices change and labor rates change over time.  Inventory is confusing in a manufacturing business, because assemblies in stock may be comprised of materials bought at different times and at different prices.  Stock sub-assemblies also have the same characteristics.

Accurate gathering of information is necessary, regardless of costing methodology.  The procedures (and costs) to gather and analyze information is critical for every business, yet is frequently overlooked.

Purchase Orders need to be created, although it is seldom necessary to print more than two copies, and many companies successfully print none at all!  Printing additional copies increases the cost of purchasing, receiving, and vouchering payments, plus printing generally makes every department that receives a printed copy less efficient than it would be to share the data electronically from a central database that is created only once. 

Printing unnecessary paper documents is very expensive.  Many companies estimate that printing documents costs the company at least one dollar per page.   That estimate includes the costs of paper (or forms), printing supplies, employee labor printing, sorting and distributing pages, sorting and filing of pages by each recipient, labor to retrieve and store completed forms each time they are referenced, plus the costs of filing cabinets and file storage areas distributed throughout the company.  Eventually, every company spends thousands of dollars increasing the company’s file storage capacity, or spends thousands of dollars on old files cabinets: emptying, cleaning, and disposing of contents.

 continue         - for more information contact:  sales@xdata.com