Quality Decision Making In Manufacturing
Apr 11, 2016
While typically thought of as being analytical, I can prove to be spontaneous is given situations. At times, I have made significant decisions on a moment’s notice. For example, several years ago needed to retitle my car, which meant refinancing my loan. I determined the value of my car was equal to my loan balance. Thus, I considered trading in my car for a new one. In only a few hours, I purchased a new car. For some people, such quick decision making can be scary while others find it exhilarating. Regardless of your personality, having the ability to make swift decisions is critical to operating any business.
You may be presented with an opportunity to quote on a particular project and have a very short turnaround time. If such scenario were to occur, do you have the necessary information to make quality decisions in a short period of time? What about your resources, are they accurate? Do you know how much it will cost you to produce the product in question? Do you know how much it would cost to buy such product?
A good cost system will provide accurate data regarding the cost of producing a product. One of the most important decisions related to determining the production of a product is that of make versus buy. Can you extrapolate the necessary data from your current system to determine what it would look like to make or buy the product? All too often, these types of forward-thinking scenarios are not considered and therefore cost systems are not set up to consider such data.
In a make vs. buy scenario, one would consider it to be straightforward to determine what it costs to buy, meaning whatever an outside manufacturer would charge then that is what it cost to buy. Unfortunately, that is only part of the equation. There is overhead in a factory which must be recovered. If you stop making a certain product, you may no longer be fully recovering your overhead. You may also reduce costs if you stop producing a product but others will remain regardless as to if you produce anything at all.
A well-built cost system will segregate this information so you can easily extrapolate what is necessary to make an accurate determination. If you are currently looking to revise your system or create a new one, now is the best time to make sure it is structured in a way which best guides you in these type of decisions. If you are at this stage, then at the very least you must do your best to perform such an analysis.
Categories: Cost Accounting
Home Repairs May Save You From Paying Tax On The Sale
Apr 07, 2016
The paint. The dust. The torn-up room. Home improvement projects may not be high on your list of enjoyable events. However, when you’re ready to sell your house, any money you have spent on fixing it up may save you from paying tax on the sale.
The Home-sale Exclusion
You probably know a married couple is entitled to $500,000 of tax-free gain ($250,000 for singles) on a home sale if they’ve used the house as a principal residence for two out of the five years prior to the sale. Taxable gain is the difference between your basis in the home (essentially, your cost) and the selling price. So, for most people, the exclusion eliminates or severely reduces any tax on a home sale. But not for all.
That is where home improvements could come into play. If you’ve kept good records, you can increase your home’s basis by adding in remodeling costs. Generally, any work that adds to your home’s value or extends its life counts toward your basis.
What Counts?
Examples of eligible expenditures include:
- Putting in a patio, deck, or swimming pool
- Finishing a basement or attic
- Landscaping
- Adding a room or fireplace
- Vinyl or aluminum siding or similar exterior improvements like masonry work
- Storm windows and doors
- New plumbing or heating system
- Air conditioning
Simple repairs, such as painting or fixing broken gutters and windows, don’t get added to your basis. However, if repairs are scheduled as part of a home improvement project, the entire cost of the renovation can be added to your basis.
Categories: Other Resources
Deducting Business & Entertainment Expenses
Apr 05, 2016
A lot of business is done outside of the office — over lunch, on the golf course, etc. Tax law allows deductions for business meals and entertainment expenses only if specific requirements are met. Even then, deductions are generally limited to 50% of the cost.
General Rules
Meal and entertainment expenses can qualify for the 50% tax deduction if they are directly related to business. Example: You have a dinner meeting with your customer to discuss the schedule for a new project. Because the purpose of the meeting is to talk about the project — a revenue generating activity for your firm — the meal is directly related to your business.
What if you don’t “talk business” while you are entertaining a customer, client, or prospect? The expense may still qualify for a deduction if a substantial, bona fide business discussion takes place before or after (on the same day as) the meal or entertainment activity. Example: You and your client meet at your office to discuss a business matter. Afterward, you treat the client to lunch and a ball game. In this case, 50% of your expenses are potentially deductible because they are associated with the active conduct of your business.
To support your deduction, you should have records of the time, place, and business purpose of the activity; who attended and their business relationship; and the amount spent.
When the 50% Limit Does Not Apply
In some cases, meal and entertainment expenses are fully deductible. Expenses that may qualify for a 100% deduction include:
- The cost of occasional recreational and social activities primarily for the benefit of employees, such as an annual summer picnic
- Amounts treated as employee compensation (for example, the cost of an all-expenses-paid vacation for your company’s top-grossing salesperson)
- Amounts paid for tickets to charitable sporting events, such as a golf fundraiser
Taxpayers must meet various requirements to qualify for these deductions. If you have questions or concerns about how these deductions may affect your business, please reach out to your William Vaughan Company representative.
Categories: Other Resources
Establishing Controls In Manufacturing
Apr 01, 2016
One essential aspect of business not always considered is developing controls. This could be related to a number of areas including how processes are handled, the accuracy of data, physical controls over products and materials, or internal controls.
I just completed a comprehensive document specifically related to process, procedures, and internal controls for one of my clients. This particular client did not have any formal written procedures, but stead a number of informal policies. Recently, management recognized the importance of documenting their current polices and implementing additional regulations for protection and to improve efficiencies.
There are situations where a product may leave the facility without approval. Establishing safeguards and security measures to prevent such events is crucial to your business. Another example of physical controls can be those related to scrap. In some industries, scrap can be a considerable amount which may be costly. A significant resale value of such scrap may lead to intentional misuse and potential fraud. Having set standards and continuous monitoring can help deter possible fraud.
Another area requiring controls is with regard to the cost system. Most likely there are calculations and determinations made periodically within the cost system. Many times when reviewing a system, I discover erroneous and counterintuitive information. Unfortunately, by the time it becomes evident during my review, a considerable amount of time has passed. Thus, cost managers have been trusting their system’s information without evaluating to ensure the results are reasonable and realistic. Implementing controls within the program can help indicate errors to prevent these ongoing inaccuracies. I have seen many instances where manufactures have relied upon their inaccurate cost information to determine if they should enter into a product line or produce a specific product.
Of course, you do not want to implement so many controls there is no room for critical thinking or growth. However, you do want to eliminate as many inefficiencies as possible. Consider implementing some or all of these various controls. Start today by taking control!
Categories: Cost Accounting
Deductions and Documentation for Charitable Contributions
Mar 31, 2016
Before filing your 1040, you will need to compile the charitable contributions you made throughout the year. The IRS allows you to deduct both cash and noncash donations on your schedule A, along with other itemized deductions. There are specific rules for cash contributions. These can be made by way of a cash, check, electronic funds transfer, debit or credit card, or payroll deductions. You will need to keep proper documentation in case your contribution is questioned.
In order for your donation to be deductible, it must be donated to a “qualified” organization. These include nonprofit groups, public charities, and educational institutions. If you are unsure about the qualifications of an organization, you can use an IRS app to help you determine the validity.
If you donate to a charity but receive a benefit in return, such as dinner or merchandise, then you can only deduct the amount that exceeds the fair market value of the benefit. For example, if you pay $100 for an event and receive a dinner that is worth $30, then your deduction will be $70. That $70 is the difference between the $100 you paid and the $30 value of the dinner.
Various rules apply regarding documentation based on your donation being over $250. If your donation is under $250, all you need is a bank record, such as a print out of your monthly bank or credit card statement. You could also use a canceled check. If you cannot provide such, you may use a written letter from the charitable organization with your name, the amount donated and the date on which you donated. If you have a payroll contribution you can use your paystub, W-2, or a letter from your employer with the amount and date you donated. In addition, you may be required to present a pledge card or other documentation with the name of the charitable organization.
If your cash donation is over $250, you will required additional information above and beyond your bank statement. A written letter from the charitable organization along with a description of any goods or services provided will be obligatory. If you received any benefit from your gift, then the letter must state what was provided and the value of that benefit. You may deduct the net amount.
You do not have to combine separate donations to the same organization when determining if your gift is over $250. For example, if you make a monthly donation to the same organization of $40 for a total of $480 for the year, this is not considered a gift over $250. You are permitted to treat each donation separately. If you have two separate donations to the same organization which over $250 then you will need documentation for each.
If you require assistance in determining your contribution status or have questions about gifting to a local charity, please feel free to a William Vaughan Company representative today (419) 891-1040.
By: Brittany Jennings, Staff Accountant
Categories: Other Resources