Costing lean manufacturing
Costing for lean manufacturing consists of the following types of costs:
- Undefined
- Direct materials
- Direct manufacturing (also called labor costs)
- Indirect
- Outsourcing
Make sure that you set up a costing version, cost categories, cost groups, and the costing sheet prior to calculating the item's cost and activating that into a standard cost, which is required to create kanban rules.
The Costing version is the main repository for maintaining costs of all types. Cost groups serve as a classification of elements of costs and are the basis for cost breakdown analysis.
Cost groups are also used to identify the basis for indirect cost calculation. Rules for calculating indirect costs are defined in the costing sheet. Cost categories are used to define costs and ledger accounts for resources as work cell types.
Direct manufacturing costs are applied when you are reporting completed quantities of a product by using the production flow planned usage of the operation resource at the operation resource standard rate (cost category rate).
A cost category must be assigned to the run time category of the work cell. The cost categories for setup and quantity are not considered in costing for lean manufacturing. The WIP accounts for each resource group are ignored in backflush costing. For subcontracted activities, no cost category is needed because the cost group that is assigned to the active service is used instead.
Indirect manufacturing costs are applied upon the debiting or crediting of WIP according to the costing sheet definition.
Production variances on direct manufacturing and indirect manufacturing costs capture the difference between the applied conversion costs for the production flow and the product's standard cost conversion cost.
Applied conversion costs on lean manufacturing
In lean manufacturing, conversion costs are not applied according to the product's standard cost conversion cost. Instead, conversion costs are calculated and applied according to the effective production flow's planned operation resource usage for the product at the standard rate for operating resources.
This calculation can result in variances to standard cost on conversion cost when the standard cost of products is not revised according to the changes to production flow.
Flattening of BOM during cost calculation for lean items
Clearing the Update on hand inventory selection, which has been defined for the production flow activity, designates items that are produced in a production flow as non-inventory controlled. As a result, these items are treated similar to a phantom component when they are included within a BOM.
When one of these components is encountered in a BOM calculation, the system explodes through the item's BOM and lifts the components one level up in the BOM as though they were components of the parent instead of components of the composed item.
The setting for Update on hand inventory can significantly change the financial postings. When this flag is cleared, the items are considered as not inventory controlled.