A small manufacturer's success story

Article Abstract:

Asmall bakery company has implemented new cost accounting and additional account function procedures under its effort to raise profit margins and reduce errors in business operating decisions. An additional accountant was hired to help with the design of an account structure which allows the firm to prepare its own quarterly and monthly financial statements. The initial computer-produced financial statement seemed to be inaccurate, but after a lengthy review, the firm realized that discrepancies were caused by the seasonal elements of the business. New and enhanced internal and external reporting procedures have helped the firm compile more meaningful financial and accounting data. Oven utilization reports have led to the design of machines which provide 50 percent higher productivity per hour than the conventional ovens.

Bread, cake, and related products, Decision-making, Decision making, Planning, Bakers and bakeries, Bakeries

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Unabsorbed overhead: what to do when contracts are cancelled

Article Abstract:

Direct labor and material costs can be identified when a contract is halted or delayed, but fixed overhead is more difficult to assess. The Defense Department uses the Eichleay Formula to arrive at an equitable adjustment of unabsorbed overhead when a contract is stopped prior to completion. The formula takes its name from a defense contractor that had a contract dispute with the Defense Department in the 1950s. In that dispute, the Armed Services Board of Contract Appeals ruled that unabsorbed overhead costs should be related to fixed overhead costs not otherwise absorbed during the delay in the contract. The means of computing overhead costs according to the Eichleay Formula and the weaknesses of the formula are discussed.

Overhead costs

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New rules for long-term construction contracts

Article Abstract:

The Tax Reform Act of 1986 significantly affects the way the construction industry will have to account for building activity and tax liability. New reporting methods for long-term construction will now have to adopt preferred financial reporting methods. Changes in tax planning and cash flow analysis result. Among the changes are: the replacement of the completed-contract method with the percentage-of-completion, or capitalized cost method. Percentage-of-completion must be measured on a cost-to-cost basis. A new 'look-back' rule measures how well percentage-of-completion is estimated.

Construction industry, Construction, Tax accounting, Buildings and facilities, Building

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