PERFORMANCEMEASUREMENTDIAGNOSTICTOOLAPPLICATIONTHOUGHTSThefollowingsummarizessomethoughtsforyouasyoupreparethePerformanceMeasurementDiagnostictool.Asyouwillsee,wewanttousecommonsenseandneedtoexercisecertainjudgmentsinitspreparation.Thatiswhywehavesostronglyencouragedtheparticipationoftheentireengagementteaminthisprocess.Pleaserememberweareusingthistoolasavalueaddedfeatureforourclients.Itcanbeanextremelyusefultoolforthem.Theanalyticalresultsinthistooldonotrequireextremelevelsofmathematicalprecisiontogetthepointacross.Wewantourclientstousethisinformationtodirectthemtowardseffortstoimprovepracticesandprocesses.Inmanycaseswewillbeabletodefineprojectswhichwecanperformtohelpthemimprove.Thatisourgoaltohelpourclientsimprovetheirbusiness.SCHEDULEI-EOPATNetSalesGenerallynetsalesshouldequaltheamountclassifiedintheclient'sfinancialstatements.Theremaybesomesituationswherecertainsalesareclassifiedabnormally(e.g.,toolingsalesasareductionoftoolingcosts).Theengagementteammustthenexercisetheirownjudgmentastoreclassifyingsuchitems.Inthecaseoftheaboveexample,thedecisionwouldprobablybenottoreclassifyunlesssuchsaleswererealisticallyaseparatelineofbusiness.MaterialMaterialcostsshouldincludeallcostsofproductormaterialsthatgoCostsintotheproductionoftheproduct.Inmostenvironmentsitwillbenecessarytogroupgeneralledgeraccounts.Varianceaccounts,separateaccountsforbook-to-physicaladjustments,etc.shouldbeincluded.Generally,manufacturingsupplieswouldnotbeincluded.However,careandjudgmentshouldbeexercised.Thereisadifferencebetweencuttingtooloilusedforamachiningoperationandpigmentaddedforcolortoaplasticsresinmix,eventhoughbothitemsmaybeclassifiedassupplies.Otherunusualsituationsmayoccur.Somecompaniesmayoutsourcecertainaspectsoftheproductionprocess,e.g.,secondaryoperations.Sincethesearepurchasedandnotproducedtheymaybeincludedinmaterials,oryoumightclassifythembelowVAM,butseparatelyinoneoftheoptionalfields.Theteamshoulddiscusssuchjudgments.Itisfarmoreimportanttobeconsistentinhowsuchissuesarehandled.Lifo(Provision)Thiswillbetheamount(s)classifiedintheclient'sfinancialstatements.Credit-2-HumanHumanresourcesshouldincludeallcostsrelatedtotheproductionResourcesprocess,i.e.,salaries,wages,benefits,payrolltaxes,workmens'compensation,vacationandovertime,etc.Onoccasion,someclientsclassifycertainofthesecostsoutsideofcostofsales.Ifso,youshouldgroupthemin.TheideahereistoarriveatanallinapproximatecostofHRrelativetoproducingaproduct.Don'tgethunguponallocationsofexecutivetime,etc.Iftheclientnormallydoesit,youmaywanttoleaveitin.However,don'tadditifitisnotthere.Dobecarefulofcertainpayrollareassuchasengineering.SomeclientsbelievetheirengineeringfunctionbelongsinG&Arationalizingthatitisasupportfunctionforsalesandmarketing.Byandlarge,realityisdifferentandtheengineeringfunctionismostlyinvolvedintooldesign,methods,etc.ThereforesuchHRcostsprobablyoughttobeinthegroupingforcostofsales.Again,thisisanareawheretheteamhastoexercisesomejudgmentandmakeadecision.OverheadOverheadwillequalamountsfromgroupingallothercomponentsofcostofsalesexcludingcostofmaterials,humanresourcesandamountsyouhavechosentoclassifyintheoptionalfields(seebelow).Whilegroupingthisclassification,taketheopportunitytoreviewG&Acoststoseeifanyshouldlogicallybeincluded.Forexample,sometimesclientsclassifyalloccupancycostsinG&A.Also,rememberthatiftheseaccountsincludeanyamorti...
