This chapter contains these topics:
Maintaining accurate and complete records on the value of inventory is one of the major concerns of most businesses today. Keeping too much of an unprofitable stock, or using inappropriate methods of costing certain inventory items, can quickly deplete your profits.
The Product Costing system allows you to store and retrieve cost information. It also helps you to manage your costs by providing informational inputs to your company's business plan. With accurate product costing, you can evaluate the following manufacturing processes to determine the impact to your company's bottom line:
Manufacturing budgets (direct labor, indirect labor, and overhead)
Product design (design and manufacturing engineering)
Accounting (gross margin by product line or item)
After you establish costs in the Product Costing system, the Manufacturing Accounting system tracks the costs, reports on variances, and posts manufacturing transactions to the general ledger.
Note:
The term work order is used throughout this guide. In general, however, transactions that affect work orders also affect rate schedules.Product Costing and Manufacturing Accounting are two of the systems that are included in the Enterprise Requirements Planning and Execution (ERPx) system.
ERPx is a closed-loop manufacturing system that formalizes company and operations planning, and the implementation of those plans. Use the ERPx system to coordinate your inventory and labor resources to deliver products according to a managed schedule.
The following diagram shows the systems that make up ERPx and the sequence in which they are implemented.
Figure 1-1 ERPxE (Enterprise Requirements Planning and Execution)
The Product Costing and Manufacturing Accounting systems provide flexibility to accommodate your manufacturing environment. Some of the benefits and features of these systems are:
Product costing plays a significant role in the manufacturing environment. Before you can implement your Manufacturing Accounting system, you must decide between using either standard cost or actual cost methodology by branch plant. If you choose standard cost methodology, set up frozen standard cost component values for the products you produce. If you choose actual cost methodology, then set up raw material and work center costs, not cost components. To calculate standard cost component values, you must consider the following aspects in the manufacturing environment:
Cost reporting (What does the item really cost to produce?)
Variance reporting (actual versus standard costs)
Product and job costing (detailed information)
Materials
Labor
Overhead
After you calculate your cost component values in a simulated mode and are satisfied with the results, you must establish frozen standard cost components. If you choose standard cost methodology, then all shop floor transactions use these frozen standards for calculations, which, in turn, create transactions in your general ledger and are the basis of your inventory valuation. If you choose actual cost methodology, then shop floor transaction costs are calculated as they occur. For actual cost, simulation and frozen cost components are not established.
Certain functions within the Product Costing and Manufacturing Accounting systems overlap with other Manufacturing and Distribution systems, such as Product Data Management and Shop Floor Control. Therefore, it is important that you have a basic understanding of the following tables and how they interact with other systems:
Item Master (F4101)
Manufacturing Data (F4102)
Branch/Plant Master (F4102)
Bill of Material Master (F3002)
Routing Master (F3003)
Work Center Master (F30006)
The following illustration demonstrates the interaction of tables within the Product Costing and Manufacturing Accounting systems.
Most of the major areas or departments within your manufacturing company contribute information to your product costing activities and, therefore, affect the overall accuracy of your manufacturing budget.
The following table lists examples of departments within your company and the aspects of the Product Costing system which are affected by that department.
Several other issues should be considered as you define and manage your manufacturing costs, including:
When (and how often) do you change standard costs?
How do you limit access to those authorized to change standard costs?
When are new items reflected in the standard?
How do you account for labor rates and work center overhead?
You might also encounter these typical circumstances as you define costs and perform rollups:
Not all standards are available before your initial cost rollup.
You have used incorrect units of measure.
Your company inaccurately reports labor hours and costs.
New products are not updated in a timely manner.
Standards are updated too frequently.
Items have been added to or deleted from the bill of material since the last cost update.
Steps in the routing master have been changed since the last cost update.
JD Edwards World systems are menu-driven. Menus are organized according to function and frequency of use.
Access Manufacturing Accounting functions from the Shop Floor Control menus.
Figure 1-5 Manufacturing Accounting Functions