Actual costing for receipt postings in manufacturing

Actual costing in Manufacturing takes place when the item's inventory valuation method defined in the Warehouse - Item (whwmd2510m000) details session is LIFO, FIFO, MAUC, or lot control. In addition to this, the Use Actual Cost Price for Receipt Posting check box in the Shop Floor Control Parameters (tisfc0500m000) details session must be selected.

Note

For information on how costing is performed if the Use Actual Cost Price for Receipt Posting check box is not selected, refer to FTP for receipt postings in manufacturing.

The main assumption when you are using actual costing is that costs are booked accurately and in time. So, if a certain item quantity is received in the warehouse, all production costs must be booked. However, in practice, actual costing is somewhat more complicated. The following factors must be taken into account:

  • If you report a production order or a specific quantity on a production order as completed, LN cannot make sure that all costs are already booked. Consequently, as a user of LN, you must define procedures that regulate the timely booking of costs so that you can use actual costing in a reliable way.
  • The completion of partial deliveries is complicated when using actual costing. Problems that occur are: Which costs are booked for which delivery? How to distinguish between costs for received quantities, and costs for quantities that are not yet received? Must setup costs be included in the first delivery's costs, or must setup costs be included in the costs for later deliveries? If you book all setup costs for the first completed delivery, this delivery will be more expensive than the following deliveries. Must material costs be included in the first delivery's costs, or must material costs be included in the costs for later deliveries? It is common practice to issue all production order materials on the first operation. If you take all the material costs on the first completed delivery, this delivery will be much more expensive then the following deliveries.

    To handle partial deliveries in case of actual costing, LN uses correction factors to distribute the costs for the partial deliveries:

  • If you use actual costing, backflushing can be a factor of complication. All backflushing must be performed before an end-item is received in the end-item warehouse. If backflushing is not performed before the end-item is received in the warehouse, the costs of the backflushed hours or materials are not included in the end-item's cost price.

You can trigger the backflushing process by running the Report Orders Completed (tisfc0520m000) details session. However, backflushing is then carried out after the production order is reported as complete. So, if you replied Yes to the following question:

Process inbound procedure automatically when activating warehouse order receipt line?

backflushing is carried out after completion of the items and receiving them in the warehouse, and costs are booked too late.

If you use actual costing and backflushing, LN has some built-in checks to minimize the risk of booking costs too late. For more information, refer to Actual costing and backflushing.

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