Cost your products
on real numbers

A manufacturer holds inventory in three forms at once: raw materials, work in process, and finished goods. Each is an asset, each has a different value, and each moves into the next. Books that only track a single inventory figure — or expense materials on purchase — cannot produce an accurate cost of goods sold or an accurate balance sheet.

The consequence shows up in margin. If materials hit the P&L when purchased rather than when consumed, a month with a large raw material order looks disastrous and the month you ship the finished goods looks excellent. Neither reflects the actual economics, and no pricing decision built on those numbers is sound.

Overhead allocation is the second issue. Factory rent, utilities, supervision, machine depreciation and maintenance are all genuine costs of production, and they need to be absorbed into unit cost. Manufacturers who count only materials and direct labor consistently underprice, sometimes by a wide margin.

Scrap and rework belong in the picture too. A production line running at eight percent scrap has an eight percent cost problem that never appears if wastage is quietly absorbed into materials usage.

And the timing of large equipment purchases carries real tax consequence. Machinery is expensive, depreciation rules change, and the difference between buying in December and January can be substantial.