Manufacturing Accounting

Accounting for Reverse Assembly

When a manufactured product is reverse assembled into its parts, the finished product is used as the raw material and its parts are obtained as the output products.

Because the finished product usually has a higher value than the sum of its raw materials, it is not appropriate to re-stock the parts based on the value of the finished product. (Otherwise, scrap metal would be worth more if it came from a luxury car than from a toaster oven.) Instead, when the parts are received from the reserve assembly, they are added to inventory using the following costs:

• If there is a standard cost available for the part, then it is added back to inventory at the standard cost.
• Otherwise, it is added back to inventory at the lowest cost which could be purchased from a supplier.
• If there is no standard cost and no purchasing information for the part, then the system will look for the last time this part was received into inventory and use that as the cost.
• If none of these costs are available, then the system will receive it at a zero cost and log a warning message.

After all the parts are received and the reverse assembly is closed out, the system will reconcile the total cost of the finished product used and the labor costs of the reverse assembly. If they are greater than the value of all the parts received, then the remainder would be charged off to a special "Manufacturing Cost Variance" account configured for your company.