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.
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.
The Product Costing and Manufacturing Accounting systems provide flexibility to accommodate your manufacturing environment. Some of the benefits and features of these systems are:
|User defined cost add-ons||Define and maintain an unlimited number of cost components for tracking specific costs, such as freight, taxes, duty, and electricity.|
|User defined cost rollup methods||Define an unlimited number of cost methods to use in cost simulation analyses.|
|User defined cost factors and rates||Allocate cost factors and rates to a specific item. Used with cost add-ons to calculate additional costs.|
|Cost variances||Print a complete set of reports to compare old costs with new costs before implementing any changes.|
|Bill of material rollup||Calculate the total material cost by retrieving the bill of material for all items and adding the total cost of the components.|
|Cost simulation||Run a complete simulation of costs before any live data is updated as the frozen standard.|
|Multi-facility costing||Maintain cost information at the branch/plant level to allow for cost variances at different locations for identical manufactured items.|
|Variances||Review four kinds of variances:
|Journal entries for variances||Create detailed or summary journal entries for work order variances.|
|Journal entries for work order transactions||Create detailed or summary journal entries for work in process or completions.|
|Automatic accounting instruction (AAI) tables||Charge dollar amounts to specified accounts.|
|Reports||Print reports listing detailed costs and variances for work orders.|
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)
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.
|Design Engineering||The Design Engineering group is responsible for ensuring that:
|Sales||The Sales force contributes important information regarding target markets, as well as the latest trends in manufacturing. For effective cost management, it is important that your sales force provide timely and reasonable forecasts.|
|Manufacturing Engineering||The Manufacturing Engineering group is responsible for identifying:
|Purchasing||The Purchasing department must provide:
|Manufacturing Operations||Manufacturing Operations provides vital information to the product costing effort. For example:
|Accounting||The Accounting staff must:
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.
|Cost Components (F30026)||Contains all cost methods and cost components for each method for all items. The exception to this is the weighted average cost method 02, which is used for the actual cost methodology.|
|Cost Ledger (F4105)||Contains the costs of all items.|
|Manufacturing Constants (F3009)||Stores variables that indicate whether Standard or Actual costs are used and whether to include efficiency and overhead in the cost.|
|Manufacturing Data (F4102)||Stores the accounting cost quantity, which the system uses to determine the allocation of fixed setup and material costs for an item.|
|Routing Master (F3003)||Stores routing information, including operation sequence, work center, run time, setup time, and machine time. The system uses this information to calculate labor, machine, and overhead costs.|
|Bill of Material Master (F3002)||Contains information at the business unit level about bills of material, such as quantities of components. The system uses this information to calculate material costs.|
|Work Center Rates (F30008)||Contains all rates for each work center, such as overhead and labor.|
|Work Center Master (F30006)||Contains detailed data about all defined work centers, including efficiency.|
|Item Ledger (F4111)||Contains IB transactions that indicate changes in inventory value.|
|Account Master (F0901)||Contains account definitions, including numbers and descriptions.|
|Account Ledger (F0911)||Contains detailed transactions in the general ledger.|
|Account Balances (F0902)||Contains net postings for each period and prior year balances (net and cumulative). There is one record per account, ledger type, subledger, fiscal year, and transaction currency table.|
|User Defined Codes (F0005)||Contains user defined codes and their descriptions. User defined codes in product costing and manufacturing accounting include:
|Standard Rate and Factor Codes (F00191)||Contains user-defined rate and factor codes that the system uses in conjunction with the Rate Code and Rate Amount fields to calculate extra costs (electricity, taxes, tooling changes, and so on).
To access this table from the P30026 Manufacturing Cost Components screen, select the F21 function key.
|Batch Control (F0011)||Contains system-generated batch header information, including the batch number, batch status, and batch entry date.|
|Distribution/Manufacturing Automatic Accounting Instruction (DMAAI) Values (F4095)||Contains account numbers that are used to create journal entries and charge dollars to those accounts.|
|Work Order Master (F4801)||Contains all work order header information. The data from this table appears on shop floor paperwork. The system updates this table when completion transactions occur against a work order.|
|Work Order Master Tag (F4801T)||Contains cost ledger information. The data from this table indicates whether standard or actual cost accounting is executed.|
|Parts List (F3111)||Contains the parts list that is attached to a work order. It contains one record for each part. The system creates this table interactively or when you run the Order Processing program.|
|Work Order Time Transactions (F31122)||Contains detail records of reported routing transaction activity.|
|Routing Instructions (F3112)||Contains the routing steps that are attached to a work order. It contains one record for each operation sequence number and work center. The system creates this table interactively or when you run the Order Processing program.|
|Production Cost File (F3102)||Contains the amounts used for work order variance calculations. The Order Processing program or interactive attachment initially updates this table followed by the Journal Entries for Manufacturing Accounting program.|
|Item Master (F4101)||Stores basic information about each defined inventory item, such as item numbers, descriptions, category codes, and units of measure.|
|Branch/Plant Master (F4102)||Defines and maintains warehouse or plant level information, such as branch level category codes.|
|Address Book (F0101)||Contains a variety of information, including information about customers, suppliers, employees, and prospects.|
|Business Unit Master (F0006)||Identifies information about business units, such as company names and category codes assigned to the business unit.|
|Cost Ledger (F4105)||Contains total costs for each cost method and level for all inventory items. Defines the Sales/Inventory and Purchasing cost method for each item.|