DBA inventory costing meets GAAP standards and IRS requirements

Inventory costing in DBA meets GAAP standards and IRS requirements for manufacturing in which material, direct labor, manufacturing overhead, and subcontract service costs must be absorbed into inventory value and only realized as cost of sales expenses when items are sold.

Do not obsess over cost perfection

In support, we see a lot of companies that spend an inordinate time stressing over minutes and pennies of costs in the quest for actual cost perfection.    They track labor actual hours and spend a great deal of time and man hours on labor data collection.  There also is a tendency to over-emphasize job linking and individual job costing instead of focusing on overall inventory costing trends.

Cost perfection leads to an increased overhead employee count

Labor data collection and job costing emphasis is very difficult to manage and leads to costly mistakes.    We see many companies that add employees, consultants, cost accountants, and trainers to administer a data collection regime.  The overhead costs added in the quest for costing perfection dwarf any potential benefits.

We recommend standard hours for routing sequences

We recommend that you set up your routing sequences as standard hours and report completions in real time as you finish sequences in work centers.

Focus on throughput to reduce overhead costs 

Improved throughput is a healthier goal to your bottom line than the obsession with labor data collection and reporting actual hours.  Reporting completions real time as you finish sequences in the work center schedule will update your costs and your progress in real time.   This will lead to improved throughput and fewer errors than actual labor hour collection.

Periodic Shop Rates calculation keeps rates in line with reality

DBA has a Shop Rates screen that will periodically review your direct labor costs and manufacturing overhead costs from your financial accounting system versus the production hours reported in DBA for the same period of time.    Even if your routing standards do not perfectly match up with times in reality, the shop rates will adjust accordingly and your absorbed costs will be aligned with your direct payroll and overhead expenses.   You could make the argument from the data that standard hours with an adjustable calculated Shop Rate will more accurately align your absorbed costs with your direct costs than an elaborate labor data collection system would.