About End of Period Costing

The system bases earned amounts on the item's standard routing. Earned amounts accumulate only when you complete quantities for the production schedule and when you report JIT production.

When you report production, backflushing uses the production schedule routing to calculate materials and hours. If you report production through a JIT transaction, backflushing uses the current routing for the item.

You can also issue labor and/or machine hours and materials manually. You post actual costs (backflushed and manual) to work centers.

The system posts variances between earned and actual costs when you run the End of Period Costing activity.

Cost performance measurements emphasize production costs for the work center, but do not provide detailed measurements for particular production schedules, JIT transactions, or their routings and end items.

Actual Materials, Labor, and Machine Hours

Actual Materials: Issue the actual materials that are needed to fulfill the requirements of a production schedule or JIT production to the respective work centers, using one or both of these methods:

Manual issue through the Work Center Material Transactions form
Automatic backflushing when production is reported to a production schedule, JIT production through the Production Schedule Complete Transactions form or the Just-in-Time Production Transactions form.

The system stores all WIP costs at the work center. You can view WIP costs on the Work Centers form, Accum Amt tab.

Actual Labor hours: Post actual labor hours worked on a production schedule or JIT production to the respective work centers, using one or both of these methods:

Manual posting through the Work Center Labor Transactions form
Automatic backflushing when production is reported to a production schedule, JIT production through the Production Schedule Complete Transactions form or the Just-in-Time Production Transactions form.

The system stores all WIP costs at the work center. You can view WIP costs on the Work Centers form, Accum Amt tab.

Actual Machine hours: Post actual machine hours that are used for a production schedule or JIT production to the respective work centers, using one or both of these methods:

Manual posting through the Work Center Machine Time Transactions form.
Automatic backflushing when production is reported to a production schedule, JIT production through the Production Schedule Complete Transactions form or the Just-in-Time Production Transactions form.

The system stores all fixed and variable overhead WIP costs on the Work Centers form, Accum Amt tab.

What Happens During Entry and Posting of Transactions

The system posts manual transactions when you enter them; there is no batch processing. In contrast, you must perform an additional step to post unposted job transactions after entering them.

The system adds WIP costs to their respective WIP buckets on the Work Centers form, Accum Amt tab, when you enter the transaction.

Each work center has associated WIP costs. When you move finished goods into inventory, the system takes the earned costs from each work center on the routing.

When backflushing, JIT production ignores control points. The system processes all operations, and backflushing occurs where appropriate.

When you enter transactions, you do not hit variance accounts. The system does not record variances until you run the End of Period Costing activity.

See Example.

Scrap

When you report a scrapped quantity on the Production Schedule Scrap Transactions form, the system does the following:

First, it stores backflushed costs as WIP for the reported operation, and for operations after the prior control point.
Second, it removes from WIP the total cost of the scrapped goods (determined by the PS routing) for that operation, along with the cost of all prior operations for each work center.
Note: The system does not remove setup costs or cost of materials issued by lot from WIP.
Third, it posts the accumulated WIP costs of the scrapped goods to the new scrap expense account.

When you run the End of Period Costing activity, the system deducts scrap expense from actual costs before determining the variance. (The system determines the variance by comparing actual costs to earned costs.) Reporting scrapped goods does not increase earned amounts.

See Example.

Earned Materials Labor and Machine Hours

The system determines earned costs when you move the goods into inventory. At that time, the system refers to the standard routing and accumulates the expected totals or earned costs for the entire routing for each work center.

The system stores these totals for each work center with the same transaction date that was used when you moved the finished goods into inventory.

See Example.

End of Period Costing

This activity reconciles the differences between the work centers' earned costs (all goods a work center produces during the period, the volume of materials and hours that should have passed through the work center, and the costs of that volume) and actual costs (the actual volume of materials and hours spent on the work center, and the costs of that volume).

From this reconciliation, the system determines the cost variances and posts them to their respective variance accounts.

Caution:

While this process runs, you can enter transactions for production and backflush WIP-related costs to the work centers. If transaction dates for these postings fall before or during the Post Through date, the End of Period Costing activity may catch some of the WIP costs for those transactions, but not all of the WIP (depending on the timing). Also, actual values may not balance with earned values, causing variances to be larger than expected. If you run the End of Period Costing activity for either the same period or the next period, all timing variances will wash out.

If an error occurs during the process, all processing for the work center is undone. The system continues to process the other work centers that meet the selection criteria.

Accounting (Labor Usage for WC)

DR LaborRateVar <Labor Rate Var account>

DR LaborUsageVar <Labor Usage Var account>

CR (LaborRateVar + LaborUsageVar) <Labor WIP account>

***OR***

CR (LaborRateVar + LaborUsageVar) <Outside WIP account>

See Example.