Accounting for paint and material (P&M) costs can mean different methods, reports or systems depending on who you are talking to. In the auto body repair business, everyone seems to know what P&M sales are, while the related costs — or costs of goods sold (CGS) — remain a bit more of a mystery. I pose that there are really two types of accounting for P&M costs.
One of my favorite old adages that again warrants repeating is, “You can’t manage what you don’t measure.” So let’s begin by talking about the first type of P&M accounting, the book keeping aspect. We want to manage P&M margins and since margins are the difference between sales and costs, we want to make sure our P&M costs are directly aligned with our P&M sales. P&M sales are fairly easy to figure out — on every RO there are subtotals on the bottom for the P&M sale. Let’s keep it simple and just use that.
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There are several systems or programs for calculating the P&M sales, including the default calculation of $xx.xx dollars for every refinish labor unit billed. Other systems and methods include Mitchell RMC (Refinish Material Calculator) Paintex, PMCLogic and others. But for this article we are going to focus on the cost side.
Regardless of how you calculate the P&M sales, you still end up with a number on each RO. Everything included in that P&M sale on the RO should have a corresponding cost. Likewise everything not included in the P&M sale needs to be accounted for elsewhere.
So let’s start with your paint bill. Generally, shops purchase most of their paint and material from their jobber. With that assumption, we need to take all P&M costs billed by the jobber and post them to CGS against P&M sales. There are several methods some may work better than others.
Method 0: Take all the purchases from the jobber and post those to CGS for P&M. One potential problem with this method is the assumption that everything is truly a P&M cost. It almost always never is!