Manufacturing Companies

Get the right accounting deal for your company

  • No manufacturing company is too small for you to properly track its accounts. Of course, you'll need the right accounting software. There are plenty of packages available, so don't just buy the first one you see. Manufacturing accounting software will probably stay with you for the life of your business, so choose it wisely:
  • Research the available products: Read forums, ask friends and colleagues, find out what other businesses like yours are using
  • Make sure it works for you: Choose accounting software that was created with input from manufacturers, so you know it'll handle your business needs
  • Ensure it's scalable: You're starting small but you may not stay that way so be sure to go for accounting software that will grow with you
  • Aim for the cloud: Cloud-based accounting software will let you access your accounts from anywhere and should cost you less up-front, as well as reducing your IT support costs

Choose the right accounting methods

  • Once you've chosen the right software, you'll need to decide how you're going to use it. That means working out which accounting methods best fit your business. The examples here will give you an overview, but you should discuss this further with your accountant or financial advisor:
  • Job order costing: Generally used for batch manufacturing (as opposed to product tracking). It's calculated by recording labour hours and raw materials units required for each batch.
  • Process costing: Handy if you run a production line, continuously manufacturing the same products or parts. Costs are accounted for by department instead of by job.
  • Activity-based costing: For use when fine-tuning and improving a manufacturing process. This can also be tied to activities such as customer service. Time-driven activity-based costing is a variation of this, which accounts for costs over a given period.
  • Variable costing: Would be used in a similar way to overhead costs, but this varies with production output – the more product you make, the higher the costs.
  • Absorption costing: Used when the product cost includes all variables and fixed manufacturing costs – raw materials, labour costs and factory overhead (FOH).
  • Other costing methods: Depending on where in the world you do business, other terminology might include standard costing, actual costing, weighted average costing and resource consumption accounting. These include elements of the methods listed above, but sometimes in a different structure.
If all this sounds confusing, don't worry. It'll make more sense when you start applying the methods to your own business. There's no one-size-fits-all, and you may find yourself using different methods for different parts of your organisation.

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