Accounting Case Study
Problem Statement:
Client engaged us to overhaul costing methodologies to standardize margin views and create contribution margin reports to evaluate specific product lines. The standard cost methodology needed to be established, because the client had traditionally only used average costing for their inventory. The second problem was cycle time related to assemblies. Direct costing and an antiquated overhead rate were in need of a revision. Finally, the third problem, we need to integrate all of these changes into a cost set in their Oracle ERP system, without interrupting current financial reporting.
We tackled our problem statement as we do many projects, from the down-up. This included:
Establishing routings through the evaluation of current labor and overhead costs. Establishing rates through system driven cycle timing/records.
Utilizing department specific cost reporting.
Splitting variable costing from fixed based on general ledger accounts and activity.
Isolating line specific costs as to not dilute the labor and OH rates.
Analyzing depreciation schedules.
Understanding and developing inbound freight rates, which analyzed tariffs, customs, current packaged dimensions, and incoterms.
Creating an interface and cost set within the Oracle ERP system to allow access to the new cost set.
Results:
The client was able to roll out the new standard costing to be used for future quoting needs, while having the ability to push profitable product lines over unprofitable product lines when dealing with tight working capital constraints. This was critical when ports were backed up during Covid-19 and the team needed to understand what product needed to be prioritized to their door by now having the ability to evaluate variable margin and contribution margin.
Conclusion:
The client was able to operate within their working capital requirements using this data and also were able to catch-up backed payment to suppliers. Overall, quoting was streamlined, working capital was increased, and the client knew what to prioritize from a shipping standpoint utilizing limited warehouse space.
