Client Background
A manufacturing company approached Hedman Partners LLP with persistent concerns about the accuracy and transparency
of their inventory costing.
Challenges Before Hedman Partners LLP Engagement
1. Limited systematic cost tracking
• Manual processes resulted in missed allocations and inconsistent application of costs.
2. Uncertain overhead rates
• Lack of confidence in calculated rates led to questions about product margins.
3. Inadequate reserve methodology
• The approach to excess and obsolete inventory reserves was not well-documented or supported leading to questions
and concerns from procurement, warehouse and executive teams.
4. Prolonged inventory close
• Inventory close process exceeded three weeks, delaying financial reporting and decision making.
5. Auditor concerns
• External auditors had raised concerns regarding the accuracy and support for inventory valuation and reserves.
Hedman Partners LLP’s Solutions
1. Collaborative Assessment & Solution Design
• Stakeholder Engagement: Conducted discovery sessions with the client’s accounting, production, and
purchasing/sourcing teams.
• Process Mapping: Mapped current inventory flows from raw materials through work-in-process (WIP) to finished
goods.
• Pain Point Identification: Identified gaps in cost allocation for overhead, freight, taxes, tariffs, import duties, and other
related expenses.
2. Overhead and Cost Allocation
• Best Practice Guidance: Leveraged deep manufacturing industry knowledge to propose and implement proven
allocation methodologies.
• Accurate Overhead Rates: Developed robust models for systematically allocating overhead to WIP and finished goods,
based on cost drivers and usage.
• Comprehensive Cost Capture: Ensured all relevant costs— including previously unallocated freight, taxes, tariffs, and
import duties—were allocated to inventory in accordance with US GAAP.
3. Inventory Valuation and Reserve Methodology
• Reserve Analysis: Guided the client in establishing reserves for excess and obsolete inventory in line with current and
forecasted demand, and industry standards.
• Net Realizable Value (NRV): Implemented procedures to assess and state inventory at the lower of cost or NRV, as required
by US GAAP.
• Documentation: Created clear, auditable schedules and workpapers supporting all inventory valuations and reserves.
4. Process Automation for Faster Close
• Automated Workbooks: Developed custom automated workbooks to streamline data collection, calculation, and
reporting.
• Standardized Close Checklist: Introduced checklists and timelines to reduce the close cycle from over three weeks to
just a few days for both monthly and quarterly closes.
5. Auditor Readiness and Support
• Audit Trail: Compiled well-documented analyses, providing clear support for all rates and reserves.
• Direct Engagement: Worked collaboratively with external auditors to address concerns and demonstrate compliance
with accounting standards.
Outcomes & Benefits
Before Engagement After Hedman Partners LLP CAAS Services
Manual, ad hoc cost tracking Automated, systematic allocation
Uncertain overhead rates Accurate, supported overhead rates
Questionable reserve methodology Inventory close cycle < 1 week
Inventory close > 3 weeks Clear insight into margins, confident decision-making
Margins unclear, management uncertainty Clear insight into margins, confident decision-making
Auditor concerns on valuation Auditors satisfied with support and accuracy
Key Results at a Glance
Improved Margins and Insights
Confident product margin calculation based on accurate overhead and cost allocations
Inventory Valued Properly
Inventory is now stated at the lower of cost or NRV, with well-supported reserves for excess and obsolete
stock
⏱️ Rapid Close
Inventory close process reduced by over two weeks, enabling timely financial reporting
Audit Success
External auditors are satisfied with the company’s analyses, documentation, and compliance with US GAAP
Conclusion
Through Hedman Partners LLP’s tailored Client Accounting & Advisory Services, the manufacturer transformed its inventory
costing, improved financial accuracy, and gained the confidence of both management and auditors. The systematic
approach, combined with effective technology tools and deep industry knowledge, delivered measurable, sustainable results.
For more information about how Hedman Partners LLP can help your company optimize inventory costing and achieve
audit-ready financials, contact us today.