Key Financial Points in Materials Management for Government Contractors

Posted by Annette Grotz on March 25, 2019

In a world of engineering changes, project requirements and keeping customers happy, engineer-to-order manufacturers delivering on government contracts are constantly balancing between materials and finance.

This blog explores this balance in covering highlights of a recent webinar presented by Kinetek Consulting's Debbie White titled: The Balancing Act: Materials & Finance. In the webinar, Ms. White discusses how to prioritize planning, production, cost accounting and project costing and how Deltek Costpoint Manufacturing helps you strike a balance when integrating materials management and finance.

Project Level Materials Management and Costing

To keep projects moving forward and everyone focused on controlling costs and scope, Costpoint Manufacturing uniquely keeps the project as the center of focus, system-wide and company-wide. Costs, inventory, manufacturing orders, and other data, are tracked and measured at the project, account and organization levels. 

Costpoint’s Sales Order capabilities work at the lowest level of the project and help you track funding levels and costs. Sales Order helps you track all details of the order and supports six different revenue recognition methods, as well as materials resource planning (MPR) and forecasts.

In Costpoint Manufacturing, you can calculate cost of goods sold a couple of ways. Inventory can be based on standard or average actual costing methods. You can decide when to book costs of goods sold – for example, from inventory – or delay to time of shipping. You can also book it into a holding account, which will back out upon revenue recognition. Costpoint lets you set up standard costing the way you want, whether detailed or high level.

Cost Variance

The manufacturing order (work in process)WIP variance analysis detailed report reveals the cause of a variance. You can easily see if it was a labor time sheet adjustment, extra material, or maybe an overhead variance. When you pull this report, you can see what cost element is causing the variance.  You will want to run this report any time your material and labor costing shows a high variance.

Government Contractor WIP Variance Analysis Report

Inventory Costing

What is inventory? An asset on the balance sheet is how most systems define inventory.

Costpoint defines inventory in a more detailed manner. It tracks quantity and location, costs, serial and lot numbers, shelf life (think adhesives), transactions (yes – this means it is auditable), ownership and abbreviations or abbreves (Costpoint’s unique time-saving method of using shorter code for the finance side of the house so they can debit or credit) for all of your raw materials and finished goods. Inventory abbreviations contain the account information necessary to post inventory transactions to the general ledger and allocate any appropriate burden costs to inventory.

Abbreves represent the raw materials and finished goods for a given project. Each abbreve can have up to 20 digits. It is a time-saving and concise way to track all of the accounting (accounts and organizations) behind the scenes.

The warehouse person uses abrreves for inventory transactions. Then when posting to the general ledger, the abbreve automatically pulls from the tables to see which account and organizations to use for the actual general ledger transaction.

Great take away tips regarding manufacturing costs:

  •  “Manufacturing order trailing costs (WIP variances) should be monitored monthly.”
  • “Timing is key to accurate manufacturing costs, which lead to accurate cost of goods sold.”
  • “If your rates vary a lot between target and actual, print out a work-in-process variance report at the end of each month to avoid a huge surprise at the end of the year.”

For a more in-depth take on how to balance materials management and finance, watch the The Balancing Act: Materials & Finance webinar.

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