Production cost
Production costs are posted whenever a journal is posted. The production costs accumulate in the Items in production and Work in process accounts until the production order is complete.
If you don't report production orders as ended, their estimated production costs are based on estimated quantities, and the system posts individual costs of quantities that you report as finished. However, the system doesn't calculate realized production cost until you report the production order as ended. When you report the production order as ended, the system calculates the final production cost by using actual production amounts.
Estimate material and capacity consumption
Estimation provides you with the projected material and capacity consumption costs of producing an item in the planned production order quantity. This step is mandatory in the production process, and the system conducts it after you create the production order. The essential function of estimation is to estimate item and route consumption during the production process. These estimates form the basis for subsequent scheduling and production processes.
Go to Production control > Production orders > All production orders, select the estimated production order, select Manage costs on the Action Pane, and then select View calculation details.
The system bases estimation on a costing resource if production isn't scheduled. If production is already scheduled, the system bases estimation on the actual scheduled resource or resource group.
When you estimate production order costs, the system bases projected cost calculations on a combination of:
Production order quantity
Components in the bill of materials (BOM)
Routing operations in the production route
Indirect costs that are applicable to these components and operations
Active cost data as of the calculation date
If a phantom line item is present in the production BOM, the calculations reflect the phantom's components and route operations. You can recalculate estimated costs to include new information. For example, this approach might be necessary if any of the following situations occur:
Changes occur in the order quantity
Components are present in the production BOM
Routing operations are present in the production route
Indirect costs are present that are applicable to these components and operations
Active cost data is present as of the recalculation date
When you run estimation, the system calculates the following types of cost values:
Production cost - This type is the top line of the estimate. It shows the complete cost of running the production order and the total sales price for the production. It's the sum of all cost lines on the estimate.
Route or resource costs - These types are the costs for the operations that are involved in a production, including elements such as setup time, run time, and overhead.
Material costs - These types are the costs and prices of the BOM components that are needed for producing the item. These types were previously established and entered into the system.
A cost estimate can also provide the following features:
Meaningful price quotations
Estimates of the profitability of the order
Estimates of raw material usage
Comparisons of cost information from previous productions
Budget and forecasting information
Estimates of the production size required for maintaining a particular cost
A sales price suggestion for the production item based on a cost plus-markup approach
Analyze production order costs
After estimating a production order, you can analyze its estimated and actual costs by using the Price calculation page or the Cost estimates and costings reports page. These pages show information about the estimated and actual costs (and quantity) for each component item, routing operation, and indirect cost. The actual costs for a production order are based on the reported consumption of material and routing operations.
You can access the detailed transactions about reported consumption of material, routing operations, and indirect costs on the Production posting page for a production order.
The Price calculation page shows the estimated material and time consumption in a production order to establish a baseline from which to measure actual costs. When a production order is ended, final costing is based on the actual material and time consumption, and allows for the comparison of expected and realized costs. You can use this page to analyze estimated and actual costs that are related to components and routing operations for a production order. You can also view the cost of goods sold information in the costing sheet format and analyze the source of production variances for an ended production order for a standard cost item.
Production control > Production orders > All production orders > Manage costs > View calculation details
Consider the following example: A company wants to compare its estimated production costs with actual production costs. The company can use the Price calculation page to view the estimated production cost before and during the production process. As personnel post journals during production, the system continues to post actual costs of items and labor/overhead on the Price calculation page. When you report the production order as ended, the system accumulates the posted costs into the realized costs so that you can compare actual costs to the original estimation.