Cost per part number: knowing what each part costs, not what it invoices
Nextica Law & Tax sets up an industrial company's cost accounting: cost breakdown by product line and part number, inventory valuation including the conversion costs the Spanish General Accounting Plan allows to be capitalised, work and product in progress, allocation of direct labour and manufacturing overheads on an explainable basis, and the treatment of scrap, rejects and rework. All with a monthly close that can be compared against budget and against the previous month, not only against the year.
It knows what each part number invoices. It does not know what it costs, and so it does not know which one is losing money.
What's included
1. Designing the cost breakdown by product line and part number, with materials, direct labour and the relevant manufacturing overheads.
2. Choosing and documenting the overhead allocation base, which must rest on the normal level of capacity utilisation and not on a bad month's output.
3. Inventory valuation including the conversion costs the accounting framework allows, and reviewing it when the plant is idle.
4. Treating work and product in progress, with a stable stage-of-completion basis across years.
5. Separating in the accounts normal process scrap —which forms part of the cost of good product— from abnormal scrap, which is a loss of the period.
6. A production reporting circuit recording parts in, good parts out and parts reworked, because without that data any criterion is an estimate.
7. A monthly close comparable against budget and against the previous month, not only against the year.
IT KNOWS WHAT EACH PART NUMBER INVOICES, NOT WHAT IT COSTS
And so it does not know which one is losing money. In a plant that figure does not come out of the financial accounts: it has to be built.
Capitalising the costs of an idle factory
overheads are allocated according to the normal level of capacity utilisation, not according to a bad month's actual output. Doing it the other way inflates inventory and pushes the loss into the following year.
Spanish General Accounting PlanAbnormal scrap capitalised into product cost
normal process scrap forms part of the cost of good product; abnormal scrap is a loss of the period and must not be included in inventory value.
Spanish General Accounting PlanA cost breakdown with no shop-floor data
without production records showing how many parts went in, how many came out good and how many were reworked, cost per part number is an estimate, and an estimate repeated every month ends up being the result.
TWO SERVICE MODES — WHAT'S YOURS
| Accounting Review or Supervision | Integrated Accounting Outsourcing | |
|---|---|---|
| Who for? | Companies that manage their accounting internally but need periodic expert review. | Companies that prefer to fully outsource accounting management to a specialized provider. |
| What does it include? | Review of records, detection of errors and inconsistencies, validation of accounting closure, and improvement recommendations. | Full scope: transaction recording, bank reconciliation, tax filing, and financial reporting. |
| Ideal for | Startups and SMEs with an internal accountant or administrative officer who manages the accounting. Family businesses that want additional control. | Companies without their own accounting department. Companies looking to reduce fixed structural costs. Subsidiaries of multinationals reporting to headquarters. |
| Main advantage | Independent external control without replacing the internal team. Detection of problems before they become sanctions. | Zero accounting worries for the entrepreneur. Scale without the need to hire permanent staff. |
Who for?
What does it include?
Ideal for
Main advantage
Frequently asked questions
Which costs can I include in the value of my inventory?
The purchase price of materials and the costs directly attributable to the product, plus the share that reasonably corresponds to manufacturing overheads to the extent they were incurred during the process. The deciding word is 'reasonably': overheads are allocated according to the normal level of capacity utilisation, not according to the actual output of a bad month. Capitalising the costs of an idle factory inflates inventory and pushes the loss into the following year, and it is one of the first things an auditor or a buyer looks at.
How are scrap and rework treated without distorting cost?
By separating normal process scrap, which forms part of the cost of good product, from abnormal scrap, which is a loss of the period and must not be capitalised. Rework works the same way: if the part is recovered, the cost of recovering it is cost; if it is discarded, it is a loss. What makes this work is not accounting theory but shop-floor data: without production records showing how many parts went in, how many came out good and how many were reworked, any criterion is an estimate, and an estimate repeated every month ends up being the result.
Cases we have worked on
- industria
Reestructuración de un grupo familiar sin conflicto
Content reviewed by
Elena Bosch Prat
Directora · Consultoría Contable y Financiera
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