How do I know if my shop rate is high enough?

Start from the full cost of running each machine and person for an hour: wages and burden, depreciation or loan payments, rent, utilities and tooling, divided by the hours you can realistically bill. If the quoted rate is below that, jobs lose money even when the shop is busy.

Should material bought for a job be expensed right away?

Usually it belongs to the job until the job is finished and billed. Expensing it at purchase makes one month look worse and the next look better, and hides whether the job actually made money.

Can you work with our shop management or ERP software?

Most likely. I work in QuickBooks and the common job shop systems. If job data and the accounting system do not agree, getting them to tie is usually the first project.

Who I work with

Accounting for fabrication and machine shops

Job shops, CNC and machine shops, welding and metal fabricators quote custom work, buy material for specific jobs and run expensive equipment that has to stay busy. Profit depends on knowing what an hour on each machine really costs and whether each job came in at the quote.

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What the books need to handle

Job costing by work order

Material, machine time, labor and outside processing like coating or heat treat coded to each work order, so every job shows its real margin against the quote.

Shop rates you can quote from

Machine and labor rates built from actual wages, burden, depreciation, rent and utilities, so quotes cover the full cost of an hour on the floor.

Work in process and job material

Open jobs valued at month end and material bought for a customer order tracked to that job, so income reflects the work actually finished.

Equipment and capital planning

Fixed asset schedules, depreciation and financing decisions timed so a new machine purchase supports both cash flow and the tax position.

Numbers worth tracking monthly

Quoted vs. actual by job

Hours and material against the quote on every completed job.

Machine utilization

Billable hours on each machine against hours available. Idle equipment still carries its cost.

Effective shop rate

Revenue per production hour, compared with the rate used in quotes.

Scrap and rework

Material and time lost to rework, which is margin that never reaches the customer.

Balance sheet accounts I keep workpapers on

Each of these is supported every month by a workpaper that ties the balance to a source document, so the number can be trusted and followed by anyone who reviews it.

Raw material and bar stock

Counted, costed and reconciled to purchases, with receipts matched to vendor invoices.

Work in process

Material, labor and machine time in open work orders, valued from job records.

Customer deposits

Deposits and progress payments carried as a liability until the job ships.

Machinery and tooling

Machines, tooling and fixtures on a fixed asset schedule, with depreciation and equipment loans tied to lender statements.

Month-end close for fabrication and machine shops

Open work orders reviewed and WIP valued
Material receipts matched to vendor invoices and accrued if not yet billed
Labor and machine hours applied to jobs
Completed jobs closed and compared with the quote
Customer deposits reconciled to open orders
Fixed asset additions and depreciation recorded

Tax

Tax considerations

Inventory and job material

How material and work in process are accounted for affects taxable income. Smaller shops may qualify for simplified inventory treatment.

Sales and use tax

Material bought for resale, shop supplies and equipment purchases are taxed differently, and the rules vary by state.

Equipment expensing

Machinery can often be expensed in the year placed in service rather than depreciated over time, timed around the year’s income.

R&D credit

Custom tooling, prototype parts and process improvements can qualify when the work and costs are documented.

General information, not advice for your specific situation. Call 239-896-6799 to talk through yours.

How I help

Common questions

How do I know if my shop rate is high enough?: Start from the full cost of running each machine and person for an hour: wages and burden, depreciation or loan payments, rent, utilities and tooling, divided by the hours you can realistically bill. If the quoted rate is below that, jobs lose money even when the shop is busy.
Should material bought for a job be expensed right away?: Usually it belongs to the job until the job is finished and billed. Expensing it at purchase makes one month look worse and the next look better, and hides whether the job actually made money.
Can you work with our shop management or ERP software?: Most likely. I work in QuickBooks and the common job shop systems. If job data and the accounting system do not agree, getting them to tie is usually the first project.

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