Solved

Controlling/ Manufacturing

  • 1 September 2021
  • 5 replies
  • 226 views

 

I have a question about controlling in manufacturing. Do you know if and how a cost allocation / distribution to an order can be done. Our customer determines overheads based on statistical value when creating a production order. But these are theoretical costs and a kind of pre-calculation.

Is it possible to assign actual costs after post-calculation/ after completed Production Order ?

 

Thank you in advance.

 

icon

Best answer by kristianharianja 2 September 2021, 05:45

View original

5 replies

Userlevel 5
Badge +3

Hi, It’s a good idea if you put the cost during pre-production as an estimate. You can do this via overhead allocation that is driven either by per qty completed, machine hour, labour time, etc. You have several options in how overhead cost is allocated. When production completed this estimation will be allocated to the goods that you manufacture. When you get the actual cost you just clear off the estimation, could be by WIP Adjustment after production completed or through journal. WIP Adjustment is one of the process that is purposely to adjust production WIP amount, a process that you can use to allocate certain cost that might have not been allocated yet to the production order. 

 

Thank you for your answer.

Do you know if it possible to assign the real overheads from accounts to Production Orders?

Meaning I would probably need some sort of report that takes the overheads for a given period from accounts and divides them by the number of production orders for that period. In your opinion is it possible to create such a report?

Userlevel 4
Badge

I have the same question and the accepted answer doesn’t really solve the question in my opinion.

 

What we’re talking about is overhead costs that aren't connected to a specific production order, and yet need to be applied to finished goods for a given timeframe. This is required to comply with UNICAP rules in the US.

 

Here is our scenario: We produce about 100 unique production orders each week. Qty of 1 on each production order. We have several people who are “yard guys”, IE, material handlers, cleanup etc, that support the manufacturing operation. These folks don’t have any direct connection to a specific production order, but support the operation as a whole.

Their labor therefore cannot be tracked to a specific production order, but rather needs to be spread out across all the production orders/units produced during a given period. The average per unit can vary quite a bit in a given timeframe based on the number of units produced, which is why it needs to be applied AFTER production order processing is complete.

 

Ideally, the way this would work is just like landed costs work for Purchases. You would create a “landed overhead” and select the production orders(and maybe the operation?) that it applies to. Then you would select the offset account where all your overheads and indirect costs were posted, enter the exact amount of your overheads and release it. In the background, this would create an inventory adjustment just like landed costs that spreads the overhead amount across the WIP or finished inventory of all the production orders. If an item is not in inventory anymore, the amount for that item would get posted to a user specified account, typically a COGS account.

 

The only way to do this manually is to use an Excel spreadsheet to create the inventory adjustment, which is what we’re doing. It’s possible but a bit clumsy.

 

Tagging @angierowley75  and @Debbie Baldwin to see if they have any more elegant solutions to this than what we’re currently doing.

Userlevel 7
Badge +2

I have worked in Manufacturing for years and I have only ever seen this done by using variable Overhead. Calculated from historical costs and estimated for the next year/quarter or however often a company changes overhead rates. 

Userlevel 5
Badge

Regrettably Acumatica does not support cost-centre based absorption costing, which is fairly important in most companies producing non-standard product runs, and is supported natively by SAP.

Companies can't really set accurate overhead rates if the product is a new variation or design, leading to some questionably large variances under variable costing which have to be hush-hush WIP-adjusted away. In these cases where costs are unknown, absorption costing is generally the way-to-go.

The best you can do is a GI to auto-calculate the rates by GLaccounts-to-factor (assuming your factor is also being reported in the system), then update the Overhead rates for the next period. It won't change the value of inventory already produced in the current period though.

If you're running average costing or don't  mind some timing difference in your FIFO/Specific costing, you could do WIP adjustments if the standard-to-actual variance is too severe, but you'd probably need another GI+Import scenario to allocate the adjustment to the correct Production Orders based on historical production. Also will need to account for whether the orders are finished/closed, since they won't be able to utilise the WIP if so.

Personally I don't like adjusting directly into inventory since that is another can of worms - you'll have to account for many more movements - eg. potential inventory issues/sales/adjustments - between the date of entry to your date of allocation.

 

Reply


About Acumatica ERP system
Acumatica Cloud ERP provides the best business management solution for transforming your company to thrive in the new digital economy. Built on a future-proof platform with open architecture for rapid integrations, scalability, and ease of use, Acumatica delivers unparalleled value to small and midmarket organizations. Connected Business. Delivered.
© 2008 — 2024  Acumatica, Inc. All rights reserved