Research and development (R & D) is not a manufacturing activity, but it is a common activity within manufacturing companies. It therefore deserves discussion in this guide because it sometimes gets confused with custom manufacturing. This chapter discusses why jobs should not be used for R & D or other non-manufacturing activities and what accounting processes should be used instead.
Jobs are designed for manufacturing physical items
Jobs in DBA are highly specialized for manufacturing physical items. A job requires at least, one output item, and that item is received to inventory for issue to other jobs or shipment to customers using a sales order. All job processes, general ledger posting, scheduling, and shop control activities are designed around this item-based inventory and sales architecture. Job costing in DBA only affects asset and contra-expense accounts and not the expense accounts associated with non-manufacturing activities.
Non-manufacturing hours distort shop rates
Attempting to use jobs for non-manufacturing labor tracking can compromise the integrity of your shop rates for labor and overhead. The calculations in the Shop Rates screen only work properly when setup and labor hours and associated costs are isolated to manufacturing activities. Mixing non-manufacturing hours and costs into these calculations distorts shop rates and adversely affects cost rollups and job costing.
Non-manufacturing activities distort the master schedule
Attempting to use jobs for non-manufacturing activities adversely affects the integrity and efficiency of the master schedule. All dates and job priorities in the master schedule screens – PO Schedule, Job Schedule, Job Control Panel, Shop Control Panel – are interconnected based on item, work center, and routing settings. None of these screens and processes is designed to include non-manufacturing activities.
R & D should be tracked through the general ledger
The proper way to account for R & D expenses in DBA is to set up an expense account for R & D or expense accounts for specific R & D projects. Labor hours can be allocated to specific expense accounts when you process payroll or you can post all hours to a general payroll account and then at period end allocate portions of that expense to R & D expense accounts using a journal entry.
Use inventory adjustments and journal entry to expense materials
If you use materials from inventory for R & D or any non-manufacturing purpose, use the Inventory Adjustments screen to deduct the items from inventory. The expense will be a debit to Inventory Adjustments. Next, take the total value of the transaction and make a journal entry debit to the appropriate R & D account, with a credit offset to Inventory Adjustments.
