The Benefit of Partnering with Manufacturing Accounting Specialists
Manufacturing is a unique industry… unlike retailers that sell merchandise and service based businesses that sell their time and expertise, manufacturers build new products. They create items from raw materials and have a variety of processing and inventory controls.
Accounting for manufacturing is complex because not only do you have to manage the cost of incoming materials, but there are also production costs, inventory control and of course, determining the appropriate final price of the products you manufacture.
Marius Fourie, Director and Business Advisor, discusses the benefit of partnering with manufacturing accounting specialists and how North Advisory is ready to help you.
The most suitable accounting method
As a manufacturer, it’s essential that you implement the accounting method that most suits your needs and helps you maximise your profits. Marius explains some of the different costing processes you can choose from and how they work:
“Job order costing is used to calculate the precise cost of manufacturing each individual product. This method is often used when you are manufacturing one distinct item or a range of different products and want to calculate the overall cost of the job. It combines the cost of the materials, labour and the related business overheads – for example a percentage of your rent, administration costs or the leasing costs of equipment.
Process costing is more commonly used when you are manufacturing multiples of a single item. If you have a production line manufacturing hundreds or thousands of the exact same product, this is a more appropriate accounting method. It calculates cost based on the manufacturing stages and helps to maintain uniformity as each job will essentially cost the same per unit – it is just the quantity manufactured that varies.
You can also use activity based costing if you want to really fine-tune your figures, because it takes into account indirect costs such as utilities, wages and business administration costs. This method can really help you enhance your data, as it produces highly accurate results.
While it might sound complicated, we have the ability to help you navigate all the different costing methods. We know that manufacturing businesses are all different, so there’s no one-size-fits-all approach.”
Similar to the engineering and design sector, manufacturers might also be eligible for the Australian Government R&D Tax Incentive (R&DTI). Marius continues:
“Manufacturers are often developing new products and even new processes, and this means they could possibly qualify for the R&DTI.
As with engineers, it’s crucial that you keep a thorough record of all the time you spend working on something new. This is central to your potential claims for the incentive. It’s always better to maintain records as you go, rather than trying to back track and allocate hours historically when it comes time to submit a claim.”
Asset protection is an absolute must have for manufacturers. Without your machinery and equipment, it’s unlikely that your business would be able to continue, so it’s critical that you have the correct insurance to cover all possibilities. Marius says it’s important to consider what additional protection your manufacturing facility might require too.
“Depending on the size of your manufacturing business, you might need to think about hiring security to monitor the plant. And if you have a significant amount of machinery, it’s a good idea to have a regular maintenance program in place with your supplier. This can help minimise the potential for breakdowns.”
Talk to our team
Here at North Advisory, we are specialists in accounting for manufacturing. We understand the complexities of your industry and know how to implement systems and processes that will help you build a strong, resilient manufacturing business.