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Components of Outsourcing in Operations

• Definition of Outsourcing: Refers to using external vendors for tasks, in this case, for components such as gearbox and vacuum pumps, managed by other entities (e.g., Atlanta Gearworks, Engineered Coatings and Machine).
• Impact on Accounting: Outsourced services are tracked in a specific account, wherein no costs are attributed to the company if not directly involved in assembly or repairs. For example, when outsourcing tasks like vacuum pumping or gearbox assembly, this work is managed externally, and thus, does not directly affect cost accounts unless moved to Cost of Goods Sold (COGS).

Handling Financial Reports and Transactions

• Understanding Reports: To accurately track expenses and revenues:

  • It is essential to maintain a report that aligns revenue and cost of goods sold down to the cents.
  • Any discrepancies, such as unrecorded costs from external vendors, lead to a misunderstanding in the financials.

• Common Mistakes:

  • Improper moving or timing of costs can lead to significant errors, such as holding costs in incorrect accounts or failing to apply them to COGS appropriately.
  • Example: If a $181,000 charge from AW Chester was invoiced at