Machining
Accounting, tax, and advisory for tool and die, precision machining, and mold shops that want accurate job costs and full use of available tax incentives.
Overview
Machine shops win or lose on quoting accuracy. If labor, machine time, tooling, and overhead are not captured job by job, a shop can stay busy and still lose money. Work in process adds another layer, since a large share of value may sit in partially finished jobs at month end. Pease Bell, a Top 200 U.S. CPA firm headquartered in Cleveland, Ohio, works with tool and die, precision machining, and mold makers to build costing and reporting that reflect how the shop floor actually runs.
We also help shops take advantage of tax rules that fit their work. Developing new processes, fixtures, and tooling to solve customer problems can qualify for the IRC Section 41 research credit, and capital-intensive operations face important choices about depreciating CNC machines and other equipment. Many shops are also family-owned and approaching a transition. With audit, tax, and advisory under one roof, we look at all of these together.
How We Help Machine Shops
Job Costing Systems
Design or review of job costing so labor, machine hours, materials, outside processing, and overhead are assigned to each job, giving owners reliable data for quoting, pricing, and deciding which work to pursue.
WIP and Inventory Accounting
Methods for valuing work in process, raw stock, and finished parts at period end, including overhead absorption and reserves, so monthly and annual financial statements are consistent and supportable for lenders.
R&D Tax Credit Studies
Identification and documentation of qualified research activities, such as developing new processes, tooling, and fixtures, to support claims for the IRC Section 41 research credit and to address related research expenditure rules.
Equipment Depreciation Planning
Planning for purchases of CNC machines, EDM equipment, and other capital assets, including Section 179 and bonus depreciation choices and buy versus lease analysis, aligned with cash flow and financing.
Audits and Reviews
Audited, reviewed, and compiled financial statements for banks, equipment lenders, and customers, with focused attention on inventory, WIP valuation, and revenue recognition for tooling and production contracts.
Succession and Exit Planning
Planning for ownership transition to family, management, employees, or an outside buyer, including business valuation, entity structure, and tax considerations, so the shop’s value is preserved through the change.
Challenges We Help Machine Shops Address
- ✓Quotes that miss because true job costs are not captured on the floor
- ✓Inconsistent WIP values that distort monthly profit
- ✓Process and tooling development that may qualify for research credits but goes unclaimed
- ✓Large equipment purchases with depreciation choices affecting several tax years
- ✓Owners nearing retirement without a defined succession plan
Frequently Asked Questions
Can a machine shop qualify for the R&D tax credit?
Many can. The IRC Section 41 research credit is not limited to laboratories. Shops that develop new or improved processes, design custom tooling or fixtures, or work through technical uncertainty to make a part to specification may have qualifying activities. The credit requires documentation of the technical challenges and the experimentation used to resolve them, so contemporaneous records matter.
How should a machine shop track job costs?
Effective job costing captures direct labor hours, machine time, material, and outside services for each job, then applies overhead using a rate based on a driver such as machine or labor hours. Comparing actual costs to the original quote after each job shows where estimates are off and which customers or part types are most profitable.
How is work in process valued in a machine shop?
WIP is generally valued at the costs incurred to date on unfinished jobs, including materials, labor, and an allocation of overhead, but not more than the amount expected to be recovered. A consistent, documented method matters more than a perfect one, since lenders and auditors look for valuations that are applied the same way each period.
Should I buy or lease CNC equipment?
It depends on cash flow, expected use, tax position, and financing terms. Buying may allow accelerated deductions through Section 179 or bonus depreciation and builds equity in the asset. Leasing can preserve working capital and ease upgrades. Under ASC 842 most leases appear on the balance sheet either way, so covenants should be considered too.
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