# A Calculations in Cost Rollup

This appendix contains these topics:

The following provides information about how hard-coded cost components are generated in the cost rollup process. These calculations can vary according to your manufacturing constants and your processing option choices.

The program adjusts direct labor hours and direct machine hours by time basis, crew size, and cumulative yield, as appropriate. The program adjusts component material quantities by operation scrap. Hours and quantities are also converted to the primary unit of measure.

## A.1 Material Cost Components

### A.1.1 A1 (Purchased Material Cost)

• If you enter a cost method in the Purchased Item processing option on the Simulate Cost Rollup program, the program uses that cost method to retrieve the cost from the Cost Ledger table.

• If you leave the processing option blank, the program uses the values entered manually on Enter/Change Cost Components.

### A.1.2 A2 (Material Scrap)

• Used for items that have a percent of scrap defined in their bill of material.

• Net added cost comes from scrap incurred when the components are assembled.

• Component material scrap cost = % of scrap from bill of material x quantity per parent item x the total cost of the component.

## A.2 Routing Cost Components

Routing cost components (cost components B and C) can be controlled manually or through the Simulate Cost Rollup program.

### A.2.1 B1 (Direct Labor)

• Parent direct labor costs = sum of direct labor calculations for all operations on the item's routing.

• Operation direct labor cost = (((operation direct labor hours / operation time basis) x operation crew size) / (operation cumulative yield % / 100)) x work center direct labor rate.

### A.2.2 B2 (Setup Labor)

• Parent setup labor cost = sum of all setup labor calculations for all operations on the item's routing.

• Operation setup labor cost = (operation setup labor hours x work center setup labor rate) / accounting cost quantity (if the accounting cost quantity is not zero).

### A.2.3 B3 (Machine Run)

• Parent machine run cost = sum of machine run calculations for all operations on the item's routing.

• Operation machine run cost = ((operation machine run hours / operation time basis) x (operation cumulative yield / 100)) x work center machine run rate.

### A.2.4 B4 (Labor Efficiency)

• Increases or decreases the cost of the labor required to produce an item. If you have set the manufacturing constants to modify costs by work center efficiency, the program creates a cost component (B4) for labor efficiency when you run Simulate Cost Rollup. In addition, if the efficiency for a work center is equal to zero, then no calculation is performed for that work center. Labor efficiency is only calculated for direct labor hours.

• Parent labor efficiency cost = sum of all efficiency calculations for all operations on the item's routing.

• Operation labor efficiency cost = operation direct labor hours - (operation direct labor hours x (work center efficiency / 100)) x work center direct labor rate.

### A.2.5 C1, C2 (Variable/Fixed Machine Overhead)

• Calculated only if you have set the Manufacturing Constants table (F3009) to include variable and fixed machine overhead in the cost. In this table, you must also determine whether machines' overhead costs are calculated from manually entered rates in the Work Center Master table (F30006) or as a percent of machine run costs.

• Parent variable/fixed machine overhead cost = sum of all variable/fixed machine overhead calculations for the item's routing.

• Operation variable/fixed machine overhead cost by percent = machine run hours x (work center variable/fixed machine overhead percent / 100) x work center machine run rate.

• Operation variable/fixed machine overhead cost by rate = machine run hours x work center variable/fixed machine overhead rate.

### A.2.6 C3, C4 (Variable/Fixed Labor Overhead)

The following calculations are displayed as rates. If you indicate on Work Center Master that variable/fixed labor overhead costs should be calculated as a percent of labor costs, multiply the work center labor rate by the percent / 100 to obtain the labor overhead rate. For example:

Operation variable labor overhead rate = (work center variable labor overhead percent / 100) x work center direct labor rate

• Calculated only if you have set the Manufacturing Constants table (F3009) to include variable and fixed labor overhead in the cost. In this table, you must also determine whether labor overhead costs are calculated from manually entered rates in the Work Center Master table (F30006) or as a percent of labor costs. In addition, you can set the manufacturing constants to factor labor overhead by work center efficiency.

• Parent variable/fixed labor overhead cost = sum of all variable/fixed labor overhead calculations for all operations on the item's routing.

• Direct labor overhead cost by rate:

• Without labor efficiency: direct labor hours x work center variable/fixed labor overhead rate

• With labor efficiency: (direct labor hours + work center efficiency) x work center variable/fixed labor overhead rate

Work center efficiency = labor hours - ((work center efficiency percent / 100) x labor hours)

• Setup labor overhead cost by rate = (operation setup labor hours / accounting cost quantity) x work center variable/fixed labor overhead rate. Accounting cost quantity is factored if it is not equal to zero.

## A.3 Outside Operation Cost Components (Dx)

An outside operation is Manufacturing's vehicle to interface with Accounts Payable. When the vendor sends an Invoice for their services, there is a purchase order in the system to use in the voucher match procedure. It is important to remember that an outside operation is nothing more than the payment for services rendered. It is not an inventoried item. The following tips relate to cost components as they relate to outside operations.

• Can be entered manually on Enter/Change Cost Components or retrieved from the Cost Ledger table (F4105) when you run Simulate Cost Rollup.

• The Simulate Cost Rollup program creates item numbers for outside operations as follows:

• Parent*OPxx. Parent = the parent item number and xx = the whole-number portion of the outside operation's operation sequence number.

For example, for item 333, an outside operation at operation sequence number 30 receives an item number of 333*OP30.

• If you enter a cost method in the Outside Operations processing option on the Simulate Cost Rollup program, the program uses that cost method to retrieve the cost from the Cost Ledger table. If the value is zero and a value previously existed in the Cost Components table, the original value remains.

• If you leave the processing option blank, the program uses the values entered manually on Enter/Change Cost Components.

• Outside operation cost components require a special handling code to segregate them from extra costs. Verify that UDC 30/CA contains a value of 1 in the special handling code (SHC) for any Dx cost component.

• Use inventory cost level 1 or 2 (CLEV). Inventory Cost Level 3 is not supported because outside operations are not inventory items, but rather the payment for services rendered. As a result of this, the functionality for Multi-Location, Lot Numbers or Serial Numbers is not included.

Caution:

Do not make the *OP item lot controlled because at Purchase Order Receipt the system writes an OV to the Cardex. This OV location is in the fold of the Purchase Order (LOCN), but the corresponding IM will always be written to the Primary Location.
• You can key in a valid cost method in Item Cost Revisions (P4105)in the Subcontracte Items procesing option for Standard Cost Simulation (P30820). This cost method holds the value associated with it for the outside operation. The result of a successful completion of P30820 will then yield an A1 cost for the *OP item and a Dxx cost type on the parent item for the outside operations.

• When an outside receipt is done with the Receipts by Purchase Order program (P4312), the DMAAI 4335 Standard Cost, is generally used along with the Inventory DMAAI 4310, and 4320 for Received Not Vouchered.

### A.3.1 Manufacturing WIP Journal Entries (P31802)

After an outside operation purchase order has been received in all or in part, you can run the Manufacturing WIP Journal Entries (P31802) to produce IH Journal Entries that relate to the outside operation. The AAI's that are generally used by P31802 for the Outside Operation are 3120 Work in Process and 3401 Accruals. The system debits 3120 and credits 3401 (an off-setting account of the 4310).

The 3120 AAI table is the value of the Outside Operation and is incorporated into the parent cost. It is the value of WIP. The 3401 balances the journal entry for 3120. The 3401 should be the same account number as the 4310, because other than balancing the 3120 and 4320, they are relatively meaningless.

The P31802 performs the following calculation: (SOQS - CLUN) * F30026 of the outside operation.

SOQS = Quantity shipped from F3112

CLUN = Actual Units from the F3102

(These fields are internal to the system and cannot be viewed on a video.)

An IH document type journal entry is created for the amount generated by the calculation. After the calculation takes place, the system updates the CLUN in the F3102 to match the SOQS in the F3112. This ensures that duplicate IH Journal Entries are not created for the Outside Operation.

Note:

The Batch Number, G/L Date, User ID, and Program ID are not updated in the Cardex for the IM entry that correspond to the Outside Operation. The IM record in the Item Ledger reflects the opposite amount of the corresponding receipt (OV) giving a net effect of zero on-hand balance and zero value.