Standard cost
Standard cost requirement
Production flow activities and resource usage will be cost accounted at standard cost. Therefore, lean manufacturing activities and resource usage will be cost accounted at standard cost and will support full absorption.
Full absorption implies that both direct and indirect cost contribute to the inventory value. Standard cost implies that a pre-determined cost is used to value resources (material, operation resource, and indirect cost).
Variance to standard cost captures the difference that arises between the realized cost and the predetermined standard cost. The creation of an item relation between a kanban rule and a collection of items (a specific item, a group of items, or all) for a production flow is restricted to only allow items that are being held at standard cost.
A standard cost must be established for an item prior to the creation and processing of kanban jobs. For purchased items, the standard cost is a simple cost creation. For manufactured items, a BOM calculation must be performed.
One exception to the standard cost requirement is for withdrawal kanbans. Withdrawal kanbans for non-standard cost products might be created if the update on-hand pick and receipt are both set to Yes. This setting will allow you to move a nonstandard cost product from one inventory location into another, but it will not allow you to move a non-standard cost product into or out of WIP.
Standard cost inventory model
All products that are related to the production flow need to be assigned to an inventory model group with the Standard cost inventory model. Standard cost is maintained for each site and activated by date. For product masters, it can be selected if the cost is maintained for each variant or for each product master.
Standard cost for materials
A cost group must be set up for purchased material that identifies the material category for costing. The cost group allows an aggregated view on cost, WIP, and variances by material category. The standard cost for material is maintained and activated manually.
Standard cost for finished products
The standard cost for products is calculated with the cost calculation based on the BOM and either the production flow and kanban rules or the route. The use of routes to calculate an item's standard cost is likely to introduce variances for the product that is produced.
Standard cost for subcontracted services
Subcontracted services in lean manufacturing are by definition non-tangible products of the type Service. This definition implies an inventory model group with the Stocked product check box cleared. For the cost calculation for output products that are based on production flow, a standard cost needs to be maintained for the services that are related to subcontracted activities. The cost group that is assigned to the services is used to determine cost variances of the subcontracted services.