Costing and compliance
for manufacturers.

A few reliable warning signs: your gross margin swings unpredictably between months, physical inventory counts differ materially from your books, or quoted jobs come in far off estimate. Accurate costing requires correct bills of material, a defensible overhead absorption basis, and variance analysis that someone actually reviews. If nobody has looked at your absorption rate in three years, it is almost certainly wrong.

More manufacturers qualify than claim it. The credit is not limited to laboratories — developing or improving a manufacturing process, designing tooling, prototyping, and testing new materials frequently qualify if the work involves technical uncertainty and a process of experimentation. Both federal and Connecticut credits are available. The requirement most companies fail is documentation, which is why we build the substantiation as the work happens rather than reconstructing it later.

Standard costing works well for repeat production runs where you can set meaningful standards and manage by variance. Actual or job costing fits custom and short-run work where every job differs. Many shops legitimately need both — standards for the production line, job costing for custom work. The mistake is running a job shop on standards nobody updates.

On a basis that reflects what actually drives your overhead. Direct labor hours made sense when labor dominated cost; in an automated shop, machine hours are usually the better driver. Using the wrong basis systematically overprices some products and underprices others, which quietly steers your sales mix toward the wrong work. We review your cost drivers and reset the basis where it no longer fits.

Manufacturers must generally capitalize production costs into inventory under Section 263A, including a share of indirect costs that many companies expense incorrectly. Your inventory method — FIFO, LIFO, or average cost — also affects taxable income significantly in periods of rising material costs. LIFO in particular can produce meaningful deferrals but requires an election and ongoing compliance.

Section 179 expensing and bonus depreciation both allow accelerated write-offs on qualifying equipment, but they interact with each other, with your taxable income, and with state conformity rules that differ from federal. Connecticut does not conform to federal bonus depreciation in the same way, so the state and federal answers diverge. Timing purchases around year-end can materially change your tax position.

Yes, and it is usually the most valuable thing we do for a manufacturer. Once costing is right, product-line and customer-level margin reporting shows which work deserves capacity and which is quietly subsidized. Shops frequently discover that their highest-volume customer is their least profitable.