PeopleSoft Cost Management 9.1 PeopleBook

Analyzing Manufacturing

This chapter provides an overview of production analysis, lists a prerequisite, and discusses how to:

Analyze production variances for standard cost items.
Analyze work in progress (WIP) inventory value in standard cost environments.
Analyze efficiency variances and work center utilization.
Display scrap and standard earned conversion costs.
Display actual labor information.

Understanding Production Analysis

PeopleSoft Cost Management enables you to manage and evaluate cost performance. When you are in the process of manufacturing items, you can generate inquiries and reports that depict potential production variances and that notifies the appropriate individuals of the variances through workflow. After you close production to accounting, you can run detailed reports that analyze production variances and WIP inventory value.

Prerequisite

Before using this chapter, review the closing production and reopening production sections of the PeopleSoft Manufacturing PeopleBook.

Analyzing Production Variances for Standard Cost Items

When you close a production ID or production quantity for accounting, PeopleSoft Manufacturing calculates variances. The variances capture the differences between the cost of what is built and the frozen standard cost of the item. The process breaks down the variances by reason, such as: configuration, usage, component yield, lot size, routing process, rework, teardown, outside processing, and output mix. These variances are summarized up to the production ID and cost element level and are used for accounting and analysis purposes.

Once closed for accounting, PeopleSoft Manufacturing calculates these production variances:

Variance Type	Accounts For	Calculation
Configuration	Difference between the cost of the production ID or production quantity's bill of material (BOM) and the cost of the bill that is used to determine the current production costs. The system combines material lot size and configuration variances for production schedules. Floor stock and expensed items are not considered part of the configuration. Quantity differences due to rounding to the appropriate unit of measure are included here.	Summarized for all components, calculated by cost element: [(ISSUE_QTY + YIELD_QTY) * component's this level and lower level costs] - component usage variance - component yield variance - (production ID completion qty * prodcost LL cost) - component total production scrap cost - mix variances- operation yield.
Usage	Cost that is associated with the difference between the component's current scheduled quantity and the actual issue quantity. The current scheduled quantity is based on the number of components that should have been used for the completed assemblies. The actual issue quantity is the number of good components that are consumed for the completed assemblies or kitted to the production ID. Usage variance is not calculated for floor stock or expensed items.	[ISSUE_QTY - (CURR_SCHED_QTY * YIELD/100)] * each element of the component's costs summarized by this level and lower level. The component's current scheduled quantity is adjusted to take into account assemblies that are scrapped before where the component is required. Additionally, the current scheduled quantity is adjusted again when the full production quantity is not completed but production is closed.
Operation yield	Difference between actual scrap and expected scrap at the operation when there is operation yield on the operation list. The difference in scrap quantity is costed at the cumulative cost for the operation at which it is incurred.	Calculated by cost element: {(actual scrap – [operation start quantity * (1– (operation yield/100))]} * cumulative operation cost
Component yield	Cost associated with the difference between the expected and the actual component yield loss of a component in production. Component yield variance is not calculated for floor stock or expensed items.	[(YIELD_QTY - (Current Schedule Qty * 1 - YIELD/100)] * component cost by cost element summarized by this level and lower level. The component's current scheduled quantity is adjusted to take into account assemblies that are scrapped before the component is required. Additionally, the current scheduled quantity is adjusted again when the full production quantity is not completed but production is closed. In this manner, the current schedule quantity is based on the quantity completed multiplied by the quantity per for the component.
Lot size	Difference in per-unit setup, fixed run, and postproduction conversion costs when the system completes assemblies (with a quantity that differs from the average order quantity [AOQ]) at an operation. A material lot size variance accounts for the difference between the production quantity and the AOQ for those components whose production quantity is per order. Lot size variances could occur if you have split a production ID and the parent and child production ID quantity are each less than the assembly item's AOQ. The system combines material lot size and configuration variances for production schedules.	For labor and machine lot size variance: Calculated by operation: (AOQ - assembly quantity issued to the operation) * (setup, fixed run, or postproduction operation time expressed in hours * corresponding labor or machine rate/AOQ). For material lot size variance: (AOQ - assembly quantity issued to the operation) * component's this-level plus lower-level costs.
Routing process	Financial impact of changes in an item's routing for a production ID or production run. This includes adding, deleting, or skipping operations and changing work centers or tasks.	Summarized by cost element: Earned labor, machine, and overhead costs from SF_EARNCONCOST - lot size variance - this-level-only assembly scrap - this-level-only assembly completions.
Rework	Total charges that are incurred for the rework production ID are compared to the standard cost of the reworked assembly. The difference is the rework expense.	Standard cost of the reworked assembly - total charges that are incurred for the rework.
Teardown	Total charges that are incurred for the teardown production ID are compared to the standard cost of the assembly that is to be torn down. The difference is the teardown expense. This always includes the This Level Labor costs of the assembly that is torn down as well as any components that are lost in the teardown process. It could also include additional labor and overhead costs if a teardown operation list is used.	(Standard cost of the assembly to tear down + standard cost of any additional components + any labor and overhead added) - (standard cost of component outputs or assembly scrap)
Outside Processing Variance	The difference between the standard outside processing costs of the operation and the vendor's price as stated on the purchase order that is used to manage the subcontracted operation.	(PRICE_PO from the production ID's purchase order - outside processing cost from the production ID's operation list) * quantity that is completed at the subcontract operation.
Mix	The difference between the actual outputs and the expected outputs.	Calculated and totaled by cost element. Applied to all outputs (co-product, by product, waste, and recycle). OUTPUT_LIST.SCHED QTY - OUTPUT_LIST.COMP QTY) * (prodcost TL cost + prodcost LL cost)
Lot Size	The difference between the operations start quantity to the operation's AOQ on which the per unit setup costs are based.	Calculated when production is completed.
Fixed Scrap Lot Size	The difference between the planned and actual setup completion quantity (run start quantity) valued at the fixed scrap cost of the operation.	Calculated when production is completed.
Unit Cost	The difference between a standard cost end item and the rolled up cost that includes any actual cost components.	Calculated when production is completed.

Note. Variances can be incurred depending on the item's unit of measure rounding and precision. If you have a unit of measure for an item that has a precision of 0 to the right of the decimal, the item can be issued only in whole units. If the item is a component on a BOM and has a component yield factor, the system schedules the component on a production ID or schedules only in whole units. However, the cost of the assembly item using the component is calculated by using the fractional quantity. This could result in small variances, because the sum of the scheduled component costs is greater than the cost of the total completed number of assemblies using the component.

Generating Production Variance Reports for Standard Cost Items

PeopleSoft Cost Management provides two reports for analyzing variances:

Potential Production Variance Report

Lists potential variances that exist in production before closing the production IDs and schedules for accounting. You can generate the report when you are in a production status that is in process, pending complete, complete, or closed for labor. Review this report periodically so that you can act to correct potential production problems. In addition, the system can send the report to the appropriate individuals through workflow to notify them of the potential variances. When this report is run, no accounting close occurs, and no variances are posted. This process only calculates and reports the variances based on the current snapshot of production.

Production Variance Report

Lists production variances that exist after you close production IDs and schedules for accounting. Reports all PeopleSoft Manufacturing variances except efficiency and utilization.

Analyzing WIP Inventory Value in Standard Cost Environments

Periodically, you must determine the value of material in process. Use this data to verify the general ledger balance for WIP inventory as well as to provide management with an indication of in-process inventory levels.

In-process inventory includes three parts:

Raw material or subassemblies for regular production that are issued to the shop floor not yet used in an assembly.

This portion of in-process inventory is stored in the work center's WIP locations and is included as part of the stockroom inventory valuation. Materials in WIP locations use the issue or replenishment method of issuing material.
Items in various stages of assembly (including material consumed from the WIP locations) as well as labor, machine, overhead, and outside processing costs that are incurred up to the point that the WIP inventory value report is run.

Additionally, components that are kitted to a production ID are directly charged to production and are, therefore, included as part of the in-process inventory (although they might not yet be part of the assembly item). The WIP Value report does not include the costs of scrapped components or assemblies that are completed to stock.
Rework or tear down assemblies or subassemblies that are issued to the shop floor.

You might issue additional components to rework an item and incur additional labor and overhead expenses to rework or tear down.

PeopleSoft Manufacturing uses information that is associated with a specific production ID or production quantity as the basis for determining the WIP value; it also maintains a status for all production. WIP value comprises production with a status of:

In process
Pending complete
Complete
Closed for labor

Production with a status of entered, firmed, released, canceled, or closed for accounting status is not included in the WIP value.

PeopleSoft Manufacturing uses various records to determine WIP value:

Record	Function
Production ID Component List	Determines the components that are used. Maintains the quantity of each component that is issued into production. By costing the component's issued quantity, the system can determine the lower-level costs of the assembly. The component list also contains the rework or teardown assembly issue quantities. This value is determined by multiplying the assembly item's this-level and lower-level costs by the issued quantity.
Earned Conversion Costs	Maintains the labor, machine, and overhead costs that are incurred to date for the production ID or production quantity. This includes conversion costs that are incurred for a subcontracted operation.
Assembly Scrap Costs	Maintains the value of scrapped assemblies to subtract from the in-process value. This includes scrap costs that are incurred for a subcontracted operation.
Production Header Output Record	Contains the quantity that is completed. For a single output production ID or schedule, this is the assembly quantity. For multiple output production, this includes the quantity of primary, co-, and by-product completions. The system also subtracts costed completions from the WIP value.

Determining WIP Value

Use the WIP Inventory Value report to analyze work in process. The basic procedure for determining WIP value is:

Determine the cost of components that are consumed from WIP locations or kitted directly to a production ID.

If the production ID is for rework or teardown, the cost of the assemblies that are issued to production is determined.
Add any labor, machine, outside processing and overhead costs.
Add any waste by-product costs.
Subtract scrapped assemblies.
Subtract assemblies and primary products, co-products, and by-products that are completed and moved to stock or to another production area.

The result is inventory remaining in process.

Understanding WIP Inventory Value Report Categories

The categories of cost across the top of the report correspond to the categories that are associated with the cost elements. They are:

Material
Inbound
Conversion (labor and machine)
Conversion overhead
Outbound
Other

PeopleSoft Manufacturing further defines each of these categories:

Summarization Category	Definition	PeopleSoft Manufacturing:
Component costs	These lower-level costs are the costs that are associated with the components that are issued to production. If the PID is for rework or teardown, these costs represent the assembly items this-level and lower-level costs.	For each component, multiplies the issued quantity by the component's standard cost as its defined in the Current Costs by Item record. It then combines this-level and lower-level costs for a given cost element.
Earned this level costs	The assembly's labor, machine, subcontract, and overhead costs earned to date based on the assembly operation completions that are recorded. Maintained in the SF_EARNCONCOST record.	Subtracts negative records that are associated with a production ID (due to completion reversals or revaluations) from the total.
Waste by-product costs	Costs that are associated with the disposal or removal of waste by-products.	Adds costs due to waste by-products to the total for the cost category. It is determined by multiplying the completed quantity as stated in the Production Output record by the cost of the waste item.
Less assembly scrap	Maintained in the SF_SCRAPCOST record.	Adds negative records (due to reversals of scrap or revaluations) from the total for the cost category.
Less assembly completions	Costs that are associated with the assemblies that are completed to stock.	Determines this value by multiplying the quantity of assemblies that are completed to stock or another production area by the assembly's standard cost. Includes primary item, co-products, and recycle by-products. It combines this-level and lower-level costs for a cost element.

Analyzing Efficiency Variances and Work Center Utilization

If you record actual labor and machine hours, you want to analyze efficiency variances and work center utilization. The Efficiency/Utilization report details variances and utilization by work center. Within work centers, the production ID or schedule that utilized the work center is specified.

Efficiency variance is the difference between the actual hours that are expended for an operation and the earned hours for the operation. Earned hours are based on the standard costing labor and machine setup, run, fixed-run, and postproduction times that are specified in the production operation list and on the quantity that is completed at the operation. The system reports efficiency variances for both labor and machine.

Utilization compares the available hours for a work center to the actual hours that are recorded for a work center. Available hours are equal to the scheduled hours (if entered for the work center) during actual labor and machine time recording. If scheduled hours are not entered, available hours are derived from the work center, production, or five-day workweek calendar. The system reports utilization measurements for both labor and machines by work center.

Note. PeopleSoft Manufacturing reports on (but does not post) efficiency variances and utilization calculations.

Displaying Scrap and Standard Earned Conversion Costs

Periodically, you want to monitor scrap and earned conversion costs that are associated with production. Viewing this information enables you to see how the manufacturing floor is performing. PeopleSoft provides you with the ability to view scrap and earned conversion costs against production IDs and production schedules in the production environment.

Earned conversion costs are calculated for:

Labor or Machine Setup	Setup time converted to hours multiplied by the labor or machine setup rate. Setup is earned when the first completion is recorded for the operation or when the SetUp Complete check box is selected during the recording of completions and scrap for an assembly.
Labor or Machine Fixed Run	Fixed run time converted to hours multiplied by the labor or machine fixed run rate. Fixed run is earned when the first completion is recorded for the operation.
Labor or Machine Run	When the run labor or machine rate is in terms of a rate per hour, the run times (or run rates) are converted to an amount per hour multiplied by the quantity completed, which is then multiplied by the labor or machine rate. When the labor or machine rate is in terms of an amount per unit, the per-unit amount is multiplied by the quantity that is completed.
Labor or Mach Post Production	Post production time converted to hours, multiplied by the labor or machine post production rate. Post production time is earned when the Post Production check box is selected during the recording of completions and scrap for an assembly or when a production ID or schedule is closed for accounting.

Pages Used to Display Scrap and Earned Conversion Costs

Page Name	Definition Name	Navigation	Usage
Scrap List by Operation	SF_SCRAP_INQ_OP	Production Control, Close and Analyze Production, Review Scrap Cost, Scrap List by Operation	After entering data in the Production Selection page, you can view scrap information by operation sequence for a specific production ID or production schedule.
Scrap Cost Detail	SF_SCRAP_INQ	Production Control, Close and Analyze Production, Review Scrap Cost, Scrap Cost Detail	After entering data in the Production Selection page, you can view detailed scrap costs for the production ID or schedule broken down by operation sequence.
Earned Conversion Cost by Operation	SF_EARNCON_INQ_OP	Production Control, Close and Analyze Production, Review Earned Conversion Costs, Earned Cost by Operation	After entering data in the Production Selection page, you can view conversion cost information by operation sequence for a specific production ID or production schedule.
Earned Conversion Cost Detail	SF_EARNCON_INQ	Production Control, Close and Analyze Production, Review Earned Conversion Costs, Earned Cost Detail	After entering data in the Production Selection page, you can view earned conversion cost detail for production.

Displaying Actual Labor Information

Use the Actual Labor inquiry pages to display a summary of the actual labor and machine hours, by operation or work center, recorded for a particular date, and to display those same actual hours in more detail by the type of labor or machine that is performed.

Pages Used to Display Actual Labor Costs

Page Name	Definition Name	Navigation	Usage
Actual Hours by Operation	SF_ACTHRS_INQ_GRD	Production Control, Close and Analyze Production, Review Actual Hours, Actual Hours by Operation	After entering data in the Production Selection page, you can view actual labor and machine hours for a production ID or schedule by operation.
Actual Hours Detail	SF_ACTHRS_INQ	Production Control, Close and Analyze Production, Review Actual Hours	After entering data in the Production Selection page, you can view detailed information on actual labor and machine hours for a production ID or schedule by operation.
Crew/Machine Resources Detail	SF_ACTHRS_INQ_SEC	Click the Show Crew/Machine Resources button on the Actual Hours Detail page.	View the details for the crew or machine.