5 Create Simulated Costs

This chapter contains these topics:

5.1 Creating Simulated Costs

You can use the Product Costing system to calculate costs on a "what if" basis. You can view the effect of any changes you want to incorporate without altering the frozen standard costs. In addition, you can simulate cost change scenarios (rollups) as many times as needed before you finalize the changes during the frozen update process.

For example, you can use simulated rollups to:

  • Simulate an increase in material costs

  • Forecast the impact of changes to labor rates

  • Develop strategies for pricing, contractual, or labor negotiation

The simulated rollup uses information from the following tables to generate costs:

Table Description
Manufacturing Constants (F3009) Values from Manufacturing Constants indicate whether overhead should be included in cost component calculations.
Work Center Rates (F30008) The rollup program uses dollar amounts and/or percentages for the calculation of labor, machine, and overhead costs.
Routing Master (F3003) Hours required for each operation and crew size values are from the Routing Master table.
Bill of Material Master (F3002) The Bill of Material table provides information on the material required at each level of the bill.
Cost Ledger (F4105) The Cost Ledger table provides costs for purchased items and outside operations.

The Simulate Cost Rollup program sums the costs of all the components in each level of the parent item's bill of material to arrive at a total cost for the parent item.

This section contains the following:

  • Creating the Costing Exceptions Report

  • Creating a Simulated Rollup

5.2 Creating the Costing Exceptions Report


From Daily Product Costing (G3014), choose Periodic Product Costing

From Periodic Product Costing (G3023), choose Costing Exceptions

Before you roll up simulated costs, run the Costing Exceptions program. The program generates a report, which lists any problems associated with an item. An example of a problem is an item without a routing. You should correct the problems and run the Costing Exceptions program again before creating a simulated rollup.

Figure 5-1 Item Cost Level Conversion report

Description of Figure 5-1 follows
Description of "Figure 5-1 Item Cost Level Conversion report"

5.2.1 What You Should Know About Processing Options

Indicate in the processing options the minimum level of error messages that you want to include in the report. You can define severity levels and error messages specific to your company by using Vocabulary Overrides. For example, if labor hours are zero is important to your company, then you might want to assign this error message a higher severity level.

The text of the message can also be changed, but it must maintain the same meaning as the original message defined by JD Edwards World. For example, you could change the message text labor hours are zero to no labor hours.

The following are examples of errors on which the system searches and the severity level to which they are assigned by JD Edwards World.

Severity Message Text
50 Manufactured item with no BOM
40 No rates for work center
30 No labor rate (for selected cost method)
30 No cost component - material cost
30 No setup labor rate (for selected cost method)
30 No variable overhead rate (for selected cost method)
30 No fixed overhead rate (for selected cost method)
30 No work center machine run rate (for selected cost method)
30 No work center machine variable overhead rate (for selected cost method)
30 No work center machine fixed overhead rate (for selected cost method)
20 Purchased part with BOM
20 BOM component with no quantity per
10 Setup hours are zero
10 Machine hours are zero
10 Labor hours are zero
10 Extras at standard and not at current or future or vice versa
10 No accounting lot size set up (future)

5.3 Creating a Simulated Rollup


From Manufacturing Systems (G3), choose Product Costing

From Daily Product Costing (G3014), choose Simulate Standard Rollup

Use the Simulate Cost Rollup program to calculate costs on a "what if" basis. Then, you can view the results on Enter/Change Cost Components.

You can perform simulated rollups and frozen updates for any cost method, excluding 02. Manufacturing Accounting system uses frozen standard costs (cost method 07), if standard costing is indicated in Manufacturing Constants.

To choose a bill of material and routing, the program searches first for a bill whose batch quantity matches the accounting cost quantity. If no such bill is found, the program uses the zero batch bill. The zero batch bill has a blank batch quantity on the header section. The component item(s) quantity per is the amount required to build one unit of the parent item.

5.3.1 Cumulative Yield

Cumulative yield, defined on the routing, affects labor and machine hours in the rollup calculations. There must be enough hours expended to obtain 100% yield at the last operation. In a series of routings, the hours must be adjusted accordingly. The following example illustrates how costing of hours is affected by cumulative yield:

Cumulative Yield = 85% (0.85)

Yield Labor Machine Setup
Without Yield 5 5 5
With Yield 5.88 5.88 5

For each operation, the labor and machine hours are adjusted by dividing the hours by the cumulative yield. Setup hours are not affected.

5.3.2 Operation Scrap

Operation scrap, defined on the bill of material, affects material cost calculations in the rollup. There must be enough material at each operation in order to obtain 100% yield at the last operation. When material cost is calculated, the quantity of the components is adjusted accordingly. The following example illustrates the effect of operation scrap on costing:

Parent = A

Component = B

Quantity per = 3

Cost of B = 5.00

Operation scrap = 8%

Cost of B rolled into parent item A = 3 x 1.08 x 5 = 16.20.

5.3.3 Before You Begin

  • Create the Costing Exceptions report

5.3.4 What You Should Know About

Topic Description
Master Routings The program uses the master routing instead of the standard routing for the item from the Routing Master table (F3003) if all of the following are true:
  • The Master Routing field on the Manufacturing Constants form is set to Y for the branch.

  • The parent item has a cross-reference item defined for master routing. (The cross-reference item must be defined with a cross-reference type of MR and the Address field must be blank.)

  • The cross-reference item has an item routing defined.

Unit of Measure Conversions The program converts all units of measure to the primary unit of measure for the purpose of the rollup.

When one of the units of measure is a potent unit of measure, the conversion equation includes the standard potency value from Branch/Plant Manufacturing Data. The following example illustrates a conversion involving a potent unit of measure:

  • Component = B

  • Quantity per = 3

  • Primary unit of measure = GA (physical gallons)

  • Component unit of measure = GP (potent gallons)

  • Standard potency = 50%

  • Cost of B = 50.00 (from the Cost Ledger table)

  • Cost rolled into parent item = [(3 / .5) x 50] = 300.00

When converting from potent units to physical units, the program divides by the standard potency. When converting from physical to potent units, the program multiplies by the standard potency.

Outside Operations If your item has an outside operation set up in the routing, verify the following before running the Simulate Cost Rollup program:
  • You have set up a branch/plant record for the *OP item

  • There is a valid cost in the Cost Ledger table (F4105) for the method specified in the Outside Operations processing option of the Simulate Cost Rollup program

Bulk Products All costing is based on quantities at standard temperatures. If you enter issues or completions quantities at ambient temperatures, the program converts them to standard.

5.3.5 Processing Options

See Section 23.4, "Cost Simulation (P30820)."