What is the difference between job costing and process costing?

Job costing collects cost by order. Each job carries its own materials, labor hours and share of overhead, so you can see whether that job made money. Process costing collects cost by production step and averages it over all the identical units that went through. Made-to-order shops use job costing. Plants that run the same product in long runs use process costing, and some plants use both.

How do you calculate cost of goods manufactured?

Add up your manufacturing cost for the period: direct materials used, direct labor and factory overhead. Add the work in process you had at the start of the period. Then subtract the work in process still on the floor at the end. The result is your cost of goods manufactured - the cost of everything you finished in the period. It is only as good as your work-in-process count.

What is standard costing?

Standard costing sets an expected cost for each product before you make it: a set amount of material, a set number of labor hours and a set share of overhead. When the actual cost comes in higher or lower, the gap is called a variance. Variances show you where cost drifted from plan. If material prices change and the standards do not, your margin reports will be wrong.

Manufacturing Accounting That Shows What Each Product Really Costs

Manufacturing accounting tells you what each product costs to make. It traces material, labor and factory overhead to each product. Then it checks that your inventory matches your books every month. We do that work. We also handle the tax side. That covers the Section 263A inventory cost rules, research and development (R&D) credit studies and California sales tax. We serve manufacturers in all 50 states from our office in Rancho Cucamonga. AJ Singh, CPA, EA, enrolled to practice before the IRS.

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$32M

2026 limit for the Section 263A small business exception. It is based on average yearly gross receipts: total sales and other income.

3,818

Places that make goods in Riverside and San Bernardino counties in 2025. Source: U.S. Bureau of Labor Statistics.

3.9375%

Off the California sales tax rate for qualifying factory equipment, through June 30, 2030

All 50 states

Where we serve manufacturers. California is home base.

An empty, modern machine shop: CNC machines and a press brake on the left, racks of parts bins and steel stock on the right, and warm light through an open bay door.

What is manufacturing accounting?

Manufacturing accounting is how a plant figures out what each product costs to make. It tracks materials, production labor and factory overhead - costs like rent, power and machine upkeep. Those costs move through raw materials, work in process (jobs started but not finished) and finished goods. The totals must match your general ledger, your main set of books, every month. The same numbers drive your tax return.

Is this you?

Six situations we help manufacturers with

Your inventory lives in a spreadsheet nobody trusts

Thousands of parts, no cost history, and a year-end number someone typed in. We sort the parts into raw materials, work in process and finished goods, then cost the parts that carry the value first. You do not need to cost every bolt to get a number you can use.

Your inventory report and your balance sheet disagree

The inventory system shows one number and the general ledger shows another. Sometimes the books are split across two programs that were never reconciled. We trace each difference back to the bank and the receiving records, correct it, and set up a monthly check that the two numbers match.

You need inventory reconciled, not a new bookkeeper

You already have someone keeping the books. What you need is an outside check at year end, before a lender visit or after a physical count. We offer inventory reconciliation as a standalone service. We match your records, a physical count and your general ledger. Then we explain every difference and hand your bookkeeper the correcting entries.

Your lender asked for compiled or reviewed financial statements

Compilations and reviews follow SSARS, the standards set by the American Institute of CPAs (AICPA). For a manufacturer, the work starts with an inventory number that ties to the books. Further down this page, we explain the difference between a compilation and a review.

Nobody has ever checked you for the R&D credit

Designing a new part, improving a process or building a prototype can count as research for the federal credit if the work passes a 4-part test. The credit is not only for labs. We run R&D credit studies that test each project and document the answer.

Talk to us about your inventory report

Cost accounting for manufacturing

Job costing, standard costing or process costing?

Cost accounting for manufacturing starts with one choice: how cost gets collected. Job costing follows each order. Process costing follows each production step. Standard costing sets the expected cost first, then tracks the gap, called a variance. Some plants use more than one. Here is how they compare.

Scroll the table sideways to compare all three

Job costing, standard costing or process costing?. Cost accounting for manufacturing starts with one choice: how cost gets collected. Job costing follows each order. Process costing follows each production step. Standard costing sets the expected cost first, then tracks the gap, called a variance. Some plants use more than one. Here is how they compare.
What to compare	Job CostingMade-to-order work	Standard CostingRepeat products, used with either method	Process CostingContinuous runs
How cost is collected	By job or work order	At a preset cost per unit, set before production	By production step, then averaged over the units
Fits best	Custom or made-to-order work	Repeat products with a stable bill of materials (the parts list for each product)	Identical units made in long runs
Typical examples	Parts made to a customer's drawing, custom equipment	Catalog products, standard assemblies	Food, chemicals, plastics
The question it answers	Did this job make money?	Where did actual cost drift from plan?	What does each unit cost at each step?
How labor is tracked	Hours charged to each job	Standard hours per unit, compared with actual	Hours per department or step
Factory overhead built into product cost	Yes	Yes	Yes
Work in process at month end	Open jobs at their cost so far	Units at standard cost, plus variances	Partly finished units, counted as fractions of a finished unit
Extra month-end step	Move finished jobs to finished goods, then to cost of goods sold when they ship	Post variances and review the standards	Count partly finished units at each step
Common failure	Labor hours never charged to jobs	Standards never updated, so margins look wrong	Work in process guessed instead of counted
Works with the 80/20 approach below	Yes	Yes	Yes

What working with us looks like

How we build true product cost and tie inventory to your books

1
Intake call - 20 minutes
You tell us what you make, how you track inventory today, and what your lender or tax preparer is asking for. AJ Singh takes this call. There is no charge, and you get a straight answer on whether we are the right firm.
2
Books and systems review
We read your last filed return, your latest inventory report and your general ledger. You get a written list of what is off, in plain English, before you commit to anything. We work in the accounting software manufacturers use, such as QuickBooks Online and Odoo software. That includes one-time setup of your chart of accounts (the list of accounts in your books) and your inventory. (Intuit and QuickBooks are registered trademarks of Intuit Inc. Odoo is a trademark of Odoo S.A. G&S Accountancy Inc. is an independent CPA firm and is not affiliated with, endorsed by, or a partner of these companies.)
3
Sort inventory into three buckets
Raw materials and purchased parts, work in process, and finished goods each get their own account in your general ledger. Shop supplies that get used up, like cutting fluid or gloves, are kept out of your parts count. Their cost goes into the shop-supplies pool that is spread over products as overhead (step 4).
4
Cost the parts that matter first - the 80/20 approach
We rank your parts by value. The parts that carry most of your inventory dollars get an individual cost. Low-cost hardware such as bolts and fasteners goes into one shop-supplies pool that is spread across products as overhead. You get a cost you can use without costing every bolt.
5
Choose a costing method and a valuation method
We recommend job, process or standard costing based on how you actually build (see the table above). Then we help you choose how inventory is valued, such as FIFO - first in, first out. You make the final call. Your method has to stay the same from year to year. Changing it for tax means filing IRS Form 3115, the form for changing an accounting method.
6
Build factory overhead into product cost
Factory rent, utilities, supervision and machine depreciation get spread over what you make, using a measure such as machine hours or labor hours. Skip this step and every product looks more profitable than it is.
7
Tie inventory to the general ledger every month
The inventory report total has to equal the inventory balance in your books. We trace each difference - a receipt never entered, a bill that does not match what arrived, a finished job whose cost never moved - and post the correction. We also check whether deposits on orders you have not shipped were booked as sales.
8
Plan the year-end count
Before year end we plan your physical count or your cycle counts - counting a few items at a time through the year. We set cutoff rules for receiving and shipping. They decide which year gets the goods that arrive or leave near year end. Then we tie the final counts to the ledger. Your tax return and any lender statements rest on this count.
9
Tax review before year end, then a monthly package
Before your year closes, we test the Section 263A exception, screen your projects for the R&D credit, and review sales tax on equipment and shipments. After that, if we keep your books, you get a monthly financial and inventory package.

Four people in an office meeting, looking at a laptop.

The tax and lender layer

Where your inventory numbers meet the IRS, California and your lender

Clean product cost is not only a management tool. It sets your tax bill, your sales tax and what your lender sees. As your manufacturing accounting firm, these are the four areas we review with you.

Section 263A (UNICAP): the $32 million small business exception

Section 263A, the uniform capitalization rules (UNICAP), makes producers add direct costs and part of their indirect costs to inventory. They cannot deduct those costs right away. For tax years beginning in 2026, a business that is not a tax shelter is exempt if its average annual gross receipts for the prior 3 years are $32 million or less. If you own related companies, their gross receipts are counted together for this test. The limit changes every year, so we re-test it every year.

R&D credit studies

We run R&D tax credit studies. The federal research credit (Internal Revenue Code Section 41, claimed on Form 6765) applies when the work passes a 4-part test. For tax years beginning after 2024, Section 174A once again lets you deduct domestic research costs in the year you pay or incur them. California has its own research credit for research done in California. It is claimed on Form FTB 3523, a California Franchise Tax Board (FTB) form.

California sales tax on equipment, materials and shipments

Qualifying manufacturing equipment gets a 3.9375% partial exemption from sales and use tax. You claim it by giving the seller Form CDTFA-230-M from the California Department of Tax and Fee Administration (CDTFA). Raw materials that become part of a product you sell can be bought tax-free for resale: you give the seller a resale certificate. Goods you must ship out of state, and do ship by your own truck or a carrier, are generally exempt from California sales tax. Already have a CDTFA notice? We also represent businesses in CDTFA sales tax audits.

Compiled or reviewed statements for your lender

Both follow SSARS, the standards set by the American Institute of CPAs (AICPA). In a compilation, we help present your numbers as financial statements, with no assurance, meaning we are not required to verify the numbers. A review adds questions and analysis and gives limited assurance. That means our report says we are not aware of any major changes the statements need. Whether we can do a review depends on our independence. Some bookkeeping, system-setup and consulting services we offer cannot be combined with a review for the same company. We check this before we accept a review.

Ask about an R&D credit study

Who does the work

The people who read your inventory report

AJ Singh

Principal, G&S Accountancy Inc.

CPA, EA

AJ Singh, CPA, EA, enrolled to practice before the IRS. He takes the first call from every manufacturing client. He reads the inventory report and the last filed return himself, and recommends answers to the costing and tax method questions before anyone changes the books. When a tax agency writes, he represents clients before the IRS and three California agencies. They are the Franchise Tax Board (FTB), the Employment Development Department (EDD) and the Department of Tax and Fee Administration (CDTFA). The firm works from one office in Rancho Cucamonga and serves manufacturers in all 50 states.

G&S accounting team

Inventory costing, month-end close and R&D credit studies

G&S Accountancy Inc., Rancho Cucamonga

The team that runs your month-end close, keeps your three inventory accounts tied to the general ledger, and prepares the schedules behind your tax return. The same people run standalone inventory reconciliations and gather the project records an R&D credit study needs. When a lender asks for reviewed statements, we confirm our independence before we accept the review.

Manufacturing in the Inland Empire

How the accounting work differs by type of manufacturer

Metal fabricators and machine shops

Fabricated metal is the largest manufacturing group in Riverside and San Bernardino counties: 737 business locations and 14,935 jobs in 2025, per the U.S. Bureau of Labor Statistics. The work here is job costing, labor hours charged to each job, and keeping equipment and loan records tied to the books.

Food manufacturers

The two counties had 338 food manufacturing locations in 2025, per the U.S. Bureau of Labor Statistics. Food plants run process costing, track yield and scrap at each step, and handle ingredients that spoil - which makes the month-end count matter.

Machinery and equipment builders

The two counties had 304 machinery manufacturing locations in 2025, per the U.S. Bureau of Labor Statistics. Long build times mean large work in process. We keep open builds at their cost so far and check the California partial exemption on the equipment you buy.

Plastics, rubber and chemical producers

The two counties had 226 plastics and rubber and 207 chemical manufacturing locations in 2025, per the U.S. Bureau of Labor Statistics. These are process-costing plants, where overhead and yield at each production step decide the unit cost.

Manufacturers that sell out of state or export

If most of your sales ship out of state, your sales tax and multistate income tax filings need a look. So do your resale certificates, the forms that let a buyer skip sales tax on goods it will resell. We serve manufacturers in all 50 states. Exporters can also ask us about IC-DISC, a tax election for exporters that uses a separate company.

Questions manufacturers ask

Manufacturing accounting and tax, answered

Talk to a manufacturing CPA

A manufacturing accountant works out what each product costs to make and keeps your inventory records tied to your books. That means tracking materials, labor and factory overhead, valuing raw materials, work in process and finished goods, and matching the inventory report to the general ledger every month. A manufacturing CPA also handles the tax side of those numbers: Section 263A, the research credit, and sales tax on equipment and shipments.

Inventory reconciliation means matching 3 things: what your inventory records say you have, what a physical count finds, and what your general ledger says it is worth. Each difference is traced to a cause - a receipt never entered, a bill that does not match what arrived, a count error, scrap never written off - and then corrected. We offer it as a standalone service, monthly or at year end, even if we do not keep your books. It works like a bank reconciliation, but for inventory.

Section 263A covers businesses that make products or buy goods to resell, so most manufacturers fall under it unless they qualify for the small business exception. For tax years beginning in 2026, the exception covers a business whose average annual gross receipts for the prior 3 tax years are $32 million or less. If you own related companies, their gross receipts are counted together for this test. Gross receipts means total sales and other income before expenses. The business also cannot be a tax shelter as the IRS defines it. The limit is adjusted for inflation every year.

They can, if the work passes a 4-part test. The work must aim to create or improve a product or process, rely on engineering or science, try to remove technical uncertainty, and test alternatives to get there. The federal credit is claimed on IRS Form 6765. A qualified small business can apply up to $500,000 a year of the credit against its payroll taxes. That means gross receipts under $5 million this year, and gross receipts in no more than 5 tax years, counting this one. California has a separate research credit.

It takes 3.9375% off the California sales or use tax rate on qualifying equipment used mainly in manufacturing. You claim it by giving the seller Form CDTFA-230-M. Your business must be primarily engaged in manufacturing. That means industry codes 3111 to 3399 in the North American Industry Classification System (NAICS). Purchases above $200 million in a calendar year do not qualify. The exemption runs through June 30, 2030, and the rest of the state rate plus local and district taxes still apply.

What to have ready

What we need to build your product cost and tie out inventory

Inventory and production records

What builds true product cost

Your latest inventory report, with quantities and unit costs
Bills of materials (the parts list for each product) for your main products
Open jobs or work orders, with cost charged to date
Your last year-end count sheets, if you took a count
Recent purchase prices for your highest-value parts
Labor hours by job or department, if you track them
Customer deposits on orders not yet shipped
The names of the systems you use for accounting, inventory and payroll
Resale certificates you gave or received (forms that let a buyer skip sales tax on goods it will resell), and any CDTFA-230-M forms you gave sellers

Financial and tax records

What the tax and lender work needs

Last 2 filed federal and state business returns
Most recent balance sheet and income statement
Bank and credit card statements through the last closed month
Equipment list with purchase dates, cost and loan terms
Any written lender request for compiled or reviewed statements
A list of design, prototype and process-improvement projects, for an R&D screen
Payroll reports by employee, and owner pay detail
Sales tax returns and proof of out-of-state shipments
Any open notice from the IRS, FTB, EDD or CDTFA

Next step

Not sure your inventory number is right?

The useful next step is a 20-minute call with AJ Singh, CPA, EA, enrolled to practice before the IRS. Bring your latest inventory report, your last filed return and any request from your lender. A member of our team will be in touch within one business day, and we will tell you plainly whether we are the right firm for the problem. Call 909-217-7855 or use the form.

Request a 20-minute consultation

Tell us what you make, which systems you use, and what your lender or tax preparer is asking for. No charge for the first call.