Regarding In Office Finish Lab and how overhead is allocated..

[Rockstargazer]

Hello fellow optiboarders- hope all had a wonderful holiday and came out of the gate in 2013 crazy busy!! Here's the background.......We just installed our finish lab late November last year. 3 weeks before the lab was opened, we bought a MD's practice including a stand alone optical department appx. 8 miles from our main office...... So here's my query-
Based on your experience how is the lab overhead allocated out on the P & L? (My department is its own profit center so costs are important on many levels.)

Should it still be treated as Cost of Goods(just like before) and a pro rata share of the overhead be charged to each of the 2 offices?
OR- should it become its own profit center which would entail billing the offices for jobs just like any other wholesale lab?

We are looking to expand our practice even more so there could be multiple locations to consider in the future. I'm just trying to keep it simple from an accounting standpoint but also accurately show/report the overhead etc. Any thoughts?

Cheers,
Marcie Patten

[rbaker]

The proprietor of the business should discuss this with your accountant.

[PRECISIONLAB]

I would treat the finish lab as it's own entity. By doing so you will be able to track and monitor profitability of the lab..fixed costs, payroll, cost of goods etc and have the lab bill retail based on a wholesale pricing structure you were accostumed to. Keep in mind the cost of goods for the retail in a sense will account for lab overhead. For example a SV CR39 job..<wholesale pricing removed as per forum rules>. The markup from lab to retail accounts for the associated lab cost to process.

[Rockstargazer]

Thank you. So basically the finish lab will bill the retail department(s) using a cost structure comparable to what retail was paying our wholesale labs for the finished job? That does make sense, however it adds another layer of adminstrative costs I'm not set up for currently. Perhaps you can recommend a software program designed specifically for this scenario? We have Essilor equipment, Mr. Blue blocker, Mr. Orange edger. We use essibox software with them. Again, thank you.

Marcie Patten

[Randle Tibbs, ABOM]

I wholeheartedly agree with rbaker. an accountant would be the logical source for the information you are looking for. they can inform you as to the direction that will be most beneficial to the practice not only in efficiency but to avoid having to pay the maximum amount of taxes as well.
if not set up properly it can be an accounting nightmare.

Randle