Bids And Inventory/cost Of Goods Sold

white8

I recently purchased an electrical contractor and up until now, they had been using cash basis and did not track inventory on bid projects. I have switch to accrual basis but am not sure how to deal with the inventory/COGS on the bid projects due to the potential variation of materials without having my employees in the field record each individual part and piece. For example, depending on how a room is framed, there are several potential electrical boxes that could be used.
How have other contractors dealt with this issue?

Mike Finley

Rereading what you wrote I think you mean you are going to stock trucks and inventory from the trucks will be reduced as a job progresses, instead of stocking a warehouse and taking what you need from the warehouse as the job progresses and you want to know how you account for parts?

white8

The way the bids are done now, the estimator includes for example an estimate of $150 for electrical boxes. The electricians grab several different boxes of various types that they think they may need and bring the leftovers back to the shop. When the job is billed, the $150 amount for boxes is included in the total bid but there isn't a cost of goods sold attached to that unknown quantity and prices of boxes so the profit is 100% which distorts the profit and loss statement. It also makes the total inventory value grow because the boxes aren't sold individually but as a group and replacements are ordered under the individual part numbers.

Aggie67

We estimate down to the nut, bolt, and gasket. On T&M we invoice down to the nut, bolt, and gasket. On projects the PM's order off of the estimator's buy sheet, and make returns or buy more as required. Everything we buy is bought using the job number as the tracking PO number. So when final project accounting is done (or T&M billing), we know which vendor invoices get charged where. The foremen turn in sheets each week with what they buy/receive, along with their hours. Everything gets tracked and accounted for. At the end of jobs we return as much excess material to the vendors as we can. Inventory is your money doing nothing.

white8

I come from a different industry and that's what I have always done but based on this business wondered if this industry was different.

Mike Finley

I think what you need to do is bill the $150 to the job.

Have your guy take $30 worth of boxes out of inventory and account for them going out the door assigned to the job.

Have your guy use $24 worth and return the other $6.00 worth and check them back into inventory subtract the $6.00 worth of boxes from the $30 assigned to the job.

Job cost for the job should be $24 worth of boxes, showing a $126 profit on those materials.

You get that by taking your inventory assignment and assigning the net costs that went to the job ($26.00 worth of boxes)

Your inventory should be missing $24 worth of boxes after all is said and done.

I think you might be getting accounting for inventory and job costing mixed up.