Costing procedures for Production Projects (Cost Objectives) Seminar Details

Transcription

1 Costing procedures for Production Projects (Cost Objectives) Seminar Details

2 1. Overview of Cost Accounting in Connection with a Production Project (Cost Objective) Cost accounting for a manufactured product is an integrated process that uses functions in WINLine START, COST, ACC2, PROD and ACC1. The integrated nature of cost accounting can be effectively demonstrated with a business process as described in section 2 of this training, Overview of Business Process from Customer Order to Customer Invoice. In this section, however, we provide an overview of the cost accounting system in WINLine and the corresponding settings that are required in the various modules. A central focus will be interpreting the Actual Costing per Piece report in WINLine COST. This report allows you to analyse costs, direct and indirect, and revenues incurred in connection with a manufactured product, for example. First, let s assume we re manufacturing a children s bike, product number A BOM list, KIDS BIKE is first defined in WINLine PROD, Base Info. The BOM list is a collection of activities (resources - workers, machines, etc.) and associated component materials for each activity level that are needed to produce a finished product. Note how the BOM list is organized in levels, here in 5 levels. Page 2

3 Once the BOM list is set up, define product in WINLine ACC2, Product Base Info, and assign BOM list KIDS BIKE to the product in the Inventory tab. OK, we ve got a product and a BOM list with which a production project (job) can be planned in WINLine PROD. Various kinds of direct costs in production (direct labor, material consumption) are incurred while manufacturing the product. How do these costs get associated to the product? The connection is made by setting up a cost objective in WINLine COST, e.g., 388 KIDS BIKE, and either assigning this cost objective to product (Inventory tab) or manually entering it when reporting manufacturing with the Final Run Report in WINLine PROD. Page 3

4 So, which direct cost types are being recorded during production to the cost objective (product) and how? Basically, there are direct cost types for resources and material. In the demo data, we have set up cost type direct labor costs ( ) for resources (activities in the BOM list, i.e., workers, machine costs, assembly areas, etc.) and cost type production material consumption ( ) for production materials taken from inventory during production (product components listed in the BOM list). These are the two basic direct cost types involved during production. How do these direct costs get assigned to the appropriate cost type during production? These settings are made in WINLine START in menu Options, Prod Parameters, section Cost Journal. Page 4

5 Here you can set up the cost types for which direct costs are incurred for resources and parts for a cost objective during the Final Run Report. It is necessary to activate the Write Cost Lines checkbox to have Cost Journal lines written in the first place. So now we ve set up steering of direct costs incurred during production. We also need to set up WHERE they are being incurred. For this purpose we have set up two cost centers, production (the production hall) and inventory (stock and warehouse), in WINLine cost. Note these are production cost centers. In other words, direct costs are recorded to these cost centers. Page 5

6 The window above shows cost type Production Material Consumption that is defined as a direct cost type. Where are the cost centers to which costs should be posted assigned for production runs? Again in WINLine START in menu Options, Prod Parameters, section Cost Journal. Page 6

7 The default cost center is assigned for resources in the window above. It is also possible to define a cost center per resource directly in the Resource Base Info. The same cost center can be used for parts or, using the checkbox, an individual cost center can be assigned for parts (e.g., 1003 Inventory in the window above). So, now we ve taken care of accounting for direct manufacturing costs. These costs will be posted to the appropriate cost centers when the production project is reported on in WINLine PROD in the Final Run Report window. How about indirect costs or overhead (indirect labor, maintenance, etc., or indirect material, grease, etc.) both of fixed and variable nature. How do overhead costs (cost types) get assigned to a cost objective? Overhead cost types can be set up either as fixed in nature or variable. Let s take a look at two cost types, the first, rent and lease, as a fixed cost type, and another cost type, power utilities cost, that is variable (i.e., set up with so-called variators). Page 7

8 Indirect Cost Type Rent and Lease, a fixed cost type The cost type is defined as an overhead cost type, as seen above. It is marked for distribution of costs to cost centers in the Values section with radio box Distribute. You can then enter the distribution proportions in the Distribute tab: Indirect Cost Type Power Utilities Cost, a variable cost type Page 8

9 Again, the cost type is defined as an overhead cost type. The variable nature of the costs in defined in the Variators tab: Page 9

10 For example, here the variator is set to 8 (i.e., 80% of costs are variable) for cost center group , which is the production cost center group. This means 80% of costs incurred to these cost centers (productive cost centers) are variable in nature. This is logical since electricity consumption increases according to how much is produced. Once the overhead cost types are set up, we also need to define how overhead costs are distributed to the desired cost centers. For this purpose, let s create several other cost centers, (administration, accounting, etc.) and use them along with the production cost centers (production, inventory) for distributing the overhead costs to various cost centers according to a specified method. To illustrate the point, see how the rent and lease costs are distributed in proportions to the cost centers above in the Distribute tab of the corresponding cost type: Page 10

11 So now we ve got the costing system set up for indirect costs as well (i.e., costs incurred through cost types distributed to cost centers on a fixed and variable basis.) For example, when a posting is made in ACC1 (Posting Real Time Batch window) for rent, the distribution to the desired cost centers is made automatically (as defined in the window above) and the respective portions of cost are automatically and immediately posted to the specified cost centers in WINLine COST (Cost Journal entries, i.e., entries for fixed and variable portions). Page 11

12 The question remains, however, how do the overhead costs get apportioned to a cost objective (product)? For this purpose, a costing rate (overhead burden rate) is calculated per cost center in the Expense Allocation Sheet report in WINLine Cost. For production cost centers, the costing rate is calculated as follows: Costing rate = Total overhead costs posted to cost center / Total direct costs posted to cost center Page 12

13 Expense Allocation Sheet for Cost Center, Inventory, a production cost center For administration cost centers (i.e., cost centers to which no direct costs can be posted) the costing rate is calculated as follows: Costing rate = Total overhead costs posted to cost center / Total of all direct costs from all production cost centers Page 13

14 Expense Allocation Sheet for Cost Center, Administration, an administrative (overhead) cost center To calculate the overhead costs (overhead burden rate) for the cost objective, the costing rate (both for variable and total costs) from the Expense Allocation Sheet is simply applied to sum of costs for the respective cost center. Let s take a look at a typical overhead cost calculation in WINLine Cost in the Actual Calculation per Piece report for cost objective 388 (product 10007). Page 14

15 Note how the respective costing rate percentage (circled in red) is applied both for variable and total costs (variable + fixed portions of cost) to all cost centers. The production cost centers, parts and material (1003) and direct labor (1004) are in the upper section of the report. The administrative costs centers (with only indirect costs) are shown in the middle section of the report (e.g., accounting). So, currently this cost objective 388 (product 10007) is costing 9, in total costs, including both direct and all indirect costs from all cost centers. Revenue from the cost objective is listed in the section below, which when costs are subtracted (SK sales), results in a contribution margin. Page 15

16 2. Overview of Business Process from Customer Order to Customer Invoice This business process illustrates many features that provide integrated procedures in WINLine, for instance, reserving a production project directly from ACC2. (Since such integration is not always needed, it is of course also possible to perform all functions in a more incremental way, which is noted when appropriate.) Steps of Business Process: Step 1: Enter order for customer 10500, Annas Sport World, for 2 items of Bicycle Voucher Type: SP Production Order A customer order is entered in ACC2 in the Data Entry, Voucher Creation, Create Vouchers menu item: Page 16

17 Note voucher type SP Order-based Production is being used. Among other things, the voucher type pre-sets the values for cost center and cost objective entered here. Let s take a look at the voucher type in Base Info, in the Voucher Type Base Info window, in the ACC1/Cost tab. Page 17

18 So now let s enter product in Voucher Creation: Step 2: Reserve Production Project (job) for customer order directly in ACC2. As soon as we enter a quantity and leave the field the Process Production Order window is opened where we can reserve the production project directly here in ACC2: Page 18

19 The red checkmarks next to activities signify that the activity has been reserved. Press the EXIT button to close the window after reserving the project. The Edit BOM/Kit list window is now opened: Page 19

20 Alterations to the BOM list for this product can be made here just with regard to this customer order. We could define that 2 bicycle chains should be produced, for example. There are various other possibilities here, as well. Once we ve completed any changed, press OK and the window is closed. (The production project does not have to be reserved here in ACC2, of course. The customer order can be read in later in WINLine PROD in the Project Read In window.) The Process Production Window and Edit BOM List windows are only opened here when entering a customer order when the following three settings are activated: 1. Product type is set to Order-based production/purchase order in Product Base Info, Inventory tab. 2. The Order-based production/purchase order checkbox is set in the Voucher Type Base Info of the corresponding Voucher Type (tab Options). 3. The Open BOM list checkbox is activated in the ACC2 Parameters in WINLine START (tree section Kit list ) Page 20

21 Let s save and print the order (press the OK button in Voucher Creation): Step 3: Load Production Project in Central Control window of WINLine PROD The production project has already been saved and reserved, so we ll load it directly in the Central Control window in WINLine PROD: Page 21

22 Click on the Production Line tab to see the project: Page 22

23 The green check mark in the Status field signifies that the project is reserved and no conflicts exist for resources or material. We can print Material Requisition Slips and work slips directly from this window for the project. In addition, this window allows you reschedule projects, assign different resources (workers, etc.) and change reservations based on materials availability based on information from purchasing. The Production Final Run Report can be opened directly also from this window (the last button at the top right). (It is of course possible to perform all functions available in this window in separate steps from individual menu items.) Step 4: Start Production Final Run Report The finished production product is reported in the Final Run Report in WINLine PROD. In our example, we have started it directly out of Central Control: Page 23

24 Differences in used parts (materials) and resources for the specific project can be entered here. For example, we enter the actual values for resource, Harold Evans, on the welding machine. Press the OK button (green check mark) and the project reported as completed. This function also transfers the direct costs for resources and materials (as defined in the first section of this paper) to WINLine COST to the cost objective in connection with this project (388). Step 5: Check Actual Project Values Overview report in WINLine PROD To get an overview of differences between actual and target costs for resources in connection with a finished product, open the Actual Project Values Overview report in WINLine PROD: To get an overview of actual direct costs of materials and resources, listed by BOM list level structures, open the Production List report (WINLine PROD, menu Production): Page 24

25 These are the actual costs that have been transferred over to WINLine COST. (When creating the report, select in the Match Code to include finished projects as well.) Step 6: Create Invoice for customer order Step 1 Open up the Voucher Management window in ACC2 to find the customer order and convert it to an invoice: Page 25

26 Click on the Invoice button at the lower right and the Voucher Entry window is opened for creating the invoice: Page 26

27 Press OK again, and the Print and Save Voucher window is opened. Press OK once again and the invoice is printed and saved. The inventory levels are adjusted correspondingly. Step 7: Post Invoice in ACC1 with monthly batch (Load button). The corresponding Journal posting lines to record revenue from the customer invoice and also to post the expenses for the manufactured product have been placed in the monthly posting batch in ACC2 when the invoice was printed. For background purposes, let s take a look at where the corresponding accounts for the posting lines have been set up in the Voucher Base Info of the corresponding Voucher Type: Page 27

28 Revenues are credited to account as above. At sale, the product is credited from the inventory changes account and debited to the COGS account To actually post the lines, we go into ACC1, to the Posting Real Time Batch window and press the LOAD button: Page 28

29 We double-click on the monthly posting batch from ACC2 for June and all posting lines contained in it are loaded into the posting window: Page 29

30 The pair of posting lines associated with the invoice are shown above, a sales invoice posting (posting type SI) and a GL posting (posting type PO). Press the OK button and the lines are posted to the Journal. Step 8: Open Actual Cost per Piece report again in WINLine Cost As a final step, we note cost accounting in connection with the cost objective by opening the Actual Cost per Piece report in WINLine COST, where after posting the invoice in ACC1, the revenue has duly been reported for the cost objective (product 10007), completing our cost reporting cycle: Page 30

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