Product Costing and Cost Management

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Product Costing and Cost Management

• Mfg/Pro Midwest User Group
• March 20, 2001
• Maria Balluch

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Costing Methods

• Standard Cost
• Track what an item should cost
• Variances are generated
• Average Cost
• Updated using weighted-average formula
• Each receipt process recalculates cost
• No variance reporting

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Available Cost Methods

• GL Costing
• Standard
• Average (requires the Cost Management Module)

• Current Costing
• Average
• Last
• None

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MFG/PRO Basic Costing

• GL Standard Costing
• Current Costing
• Average
• Last
• None
• 3.24 Inventory Control File
• Cost Management Module allows more choices

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Cost Management Extra Features

• Average GL Costing
• Simulated Costing
• What-If Scenarios
• Historical Costing
• As-Of Date Cost for comparison reports

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Cost Elements

• Material
• Labor
• Burden
• Overhead
• Subcontract

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Additional Elements

• Available with the Cost Management Module
• Added elements will sum into total cost

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Material Costs

• This-Level for Purchased Items
• Become Lower-Level for Manufactured Items
• Entered directly for each item
• Defaults as Purchase Order Cost in PO Maintenance

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Labor Costs

• Calculated from Routing Set-up/Run Times and Work
  Center Rates
• This-Level for Manufactured Items
• Become Lower-Level when item contains
  Sub-assemblies

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Burden Costs

• Represents the Variable Overhead
• Calculated from Routing Set-up/Run Times and Work
  Center Burden Rates
• This-Level for Manufactured Items
• Become Lower-Level when item contains
  Sub-assemblies

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Overhead Costs

• Represents the Fixed Overhead
• Applied to This-Level for Purchased or
  Manufactured Items
• This cost is applied to the Overhead Account at
  the time of PO Receipt or Work Order Receipt

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Subcontract Costs

• Cost associated with outsourced operation
• Calculated from the Subcontract Cost applied to
  Routing operation

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Cost Roll-Ups

• Routing Cost Roll-Up (14.13.13)
• Totals the labor/machine hours and cost,
  subcontract cost and burden cost
• Computes the cumulative operation yield based on
  the routing
• Posts the cost data to This-Level labor, burden
  and subcontract fields for the cost set specified

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Cost Roll-Ups

• Product Structure Cost Roll-Up (13.12.13)
• Obtains This-Level Costs from the Item Master
• Performs a Level-by-Level computation of costs
  for the five cost categories
• Uses the Product Structure

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Item-Site Costing

• Costs are SITE SPECIFIC by item
• Costs entered at one site need to be copied or
  entered at other sites
• Cost Management Cost Set to Cost Set Copy
  (30.3)
• Linked-Site Costing (EB02 Release)
• Default Costing Site

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Item Costing Considerations

• Costs are calculated/input for the level at which
  they are incurred
• Purchased Items do not incur low-level costs
• Work Center Rates are considered Labor and Burden
  standard rates
• Overhead is applied at This-Level when incurred
• The TOTAL cost of the item is considered its
  standard cost
• Sub-Modules will use each element of the total

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Variance Calculations

• Variance any cost difference between what is
  actually generated and what is expected
  (standard)
• Only result when using GL Standard Costing
• Purchase Orders, Work Orders (discrete or
  repetitive) and Accounts Payable Vouchers
  generate variance transactions

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Purchase Orders

• PO Cost defaults to This-Level Material for the
  item entered on the PO
• Any difference between this cost and what the PO
  Cost is changed to results in a Variance
  (Purchase Price Variance PPV)
• Variance is generated at PO Receipt
• Overhead is applied at PO Receipt

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Work Orders

• Components are costed at their Standard Cost
• Labor is costed at the Run-Time times the Labor
  Rate
• Burden is costed at the Run-Time times the Burden
  Rate
• Variances are calculated during Shop Floor
  reporting or at Accounting Close

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Work Order Variances

• Material Usage Variance
• If a quantity issued is different than expected
• Material Rate Variance
• If the cost is different at issue than at release
• Labor/Burden Usage Variance
• If more or less time is reported than expected
• Labor/Burden Rate Variance
• If Employee Rate is different than WC Rate or if
  WC Rates change between reporting and release

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Work Order Variances, Cont.

• Subcontract Usage Variance
• If more/less received on PO than expected
• Subcontract Rate Variance
• If PO Cost for Subcontract PO differs from
  expected cost on routing
• Method Variance
• Anything left over in WIP when the WO is
  Accounting Closed and all other variances are
  posted

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Work Order Cost Report

• Work Order Cost Report (16.3.4) is best tool for
  determining Work Order Costs and Work Order
  Variances
• Defines products at each level (Material, Labor,
  Burden and Subcontract)
• Explains where/why variance was generated

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Work Order Cost Report

• Insert Here

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Accounts Payable Variance

• AP Rate Variance
• Difference between PO Receipt Cost and Invoice
  Cost at Voucher Maintenance
• AP Usage Variance
• Difference between PO Receipt Quantity and
  Invoice Quantity at Voucher Maintenance

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Cost Simulation Benefits

• Requires the Cost Management Module
• Can create What-If scenarios
• Can change material costs, labor and burden costs
  and subcontract costs to perform cost analysis
• See ahead what cost impact a change in
  process/supplier would mean

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Historical Cost Sets

• Requires the Cost Management Module
• Can save costs at various points in time for
  comparison to todays cost

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General Comments

• Costing touches every module of MFG/PRO
• All Inventory is transacted at GL Cost
• Variances are generated real-time
• Any change to GL Cost will revalue the current
  Inventory on Hand

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General Comments, cont.

• Inventory Analysis uses cost (ABC Report,
  Inventory Valuation Report)
• Inventory Control uses cost
• Physical Inventory uses cost
• Purchase Orders, Sales Orders, Sales Analysis,
  SSM use cost
• DRP, Product Structure Costing, Routing Costing,
  Work Orders, Repetitive, Shop Floor Control use
  cost

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Continued.

• MRP Production Cost Plans use cost
• General Ledger balances are updated with cost
  transactions
• Accounts Payable uses cost
• EDI Transmission uses cost

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Continued...

• Costs are expressed in terms of Base Currency
• Central Order Processing environments will
  transact using Base Currency Costs, even with
  different base currencies
• Configured/Made-to-Order products are costed
  appropriately depending on Option setup and
  Manufacturing process

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QUESTIONS?????