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If you’re not doing this with manufacturing accounting, you need to.

manufacturing accounting software
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If you’re not doing this with manufacturing accounting, you need to.

How can an industry specific manufacturing accounting software solution help you achieve maximum output with minimum input?

First coined by Toyota decades ago, the practice of removing waster is as crucial to the bottom line as maximising productivity. It all comes down to the visibility you create in your accounting systems and feeding that back into your manufacturing teams.

Visibility, visibility, visibility.

This feedback loop is crucial. Let’s say that the manufacturing team adopts a new process designed to quicken the output of a product. Without adopting accounting for manufacturing processes, especially as it increases in complexity, it can be challenging to understand how operational changes genuinely affect the bottom line.

EVERY manufacturing business needs to understand where their production costs lie. They need to understand the hundreds of individual elements that combine together to make a profitable outcome.

A blowout in the chain can have a compounding effect, and this comes down to accounting visibility.

Think about your manufacturing overheads 

It’s effortless to only consider the overheads directly related to producing a product when thinking about overheads. But there are more things to consider than direct materials and direct labour.

Have you considered the cost of electricity to power the machinery and equipment? Your workers that support the running of the business? These are elements that are crucial to business operations, but not just the product.

Work in progress goods – This is the amount of money that you have spent on direct materials, labour and costs on each in-progress item in your inventory.

Finished goods – This is the cost associated with items you have completed and are ready for the customer.

It’s crucial to split and identify these costs as they allow you to track and manage the amount of inventory and goods you have in your production line at any one time.

Using the right costing method

Achieving higher profitability in part is due to the type of costing method you employ. Accounting software for manufacturers may offer different ways, so it’s essential to understand the distinction.

Standard costing – This is an accounting system where there are standard rates for materials and labour. Standard costing is used to work out the cost to produce a single unit.

You will be able to identify anomalies and make pricing adjustments. You can see where you may be able to squeeze costs due to extra waste and increase profitability. Standard costing is an effective method if you are creating large quantities of a single product.

Job costing – This is also known as variable costing. This is a more tailored manufacturing approach if you run a manufacture to order business. Think custom built.

You can work specifically with the project at hand and then apply markups, analyse materials and overheads.

Activity-based costing – This is a costing method that differs from job costing in that it incorporates more indirect costs, such as resource consumption. It can help you hone which products are profitable and spot opportunities to drive better results for your existing products. This accounting style works best for businesses with a complex product mix.

Inventory management is a vital component for manufacturers.

Inventory Management is crucial. Having a dollar figure associated with your inventory will allow you to gain full visibility of how much profit you are making.

Whether you have products with a shelf life, need to move inventory quickly, or track individual products, it is essential to know where your inventory is in its lifecycle and how much value is associated with that product as it moves along the journey. 

Manufacturing accounting software, what will work for you?

Information is crucial. Without accurate, timely and quality information, you can never expect to tighten deadlines and squeeze every bit of profitability out of your business. 

You need to understand the materials circulating within your business and how they fit into the larger picture. Useful manufacturing software will allow you to track, manage and extract relevant data from the entire process. You will be able to isolate areas that need attention, those that pose a risk, as well as those that will help you make smart business decisions. 

An all-in-one solution is key. A manufacturing accounting software solution which handles other tasks, aside from finances, such as planning and production. This solution type is known as Enterprise Resource Planning (ERP). Ideally, data should move freely between production lines and the back office, meaning you have accurate real-time data.

Want to find out more? Speak to the team at Thrive today.