Correction for high progress operations

If you apply actual costing, you sometimes must deal with operations that have a higher progress factor than the percentage of end items that is already completed on the production order. If the already completed quantity of end items is received in inventory, costs on the operation(s) with higher progress are also included, although these costs do not apply to the received end items. Therefore, a correction factor is used by LN.

Example
  • Production order quantity = 100
  • Quantity completed on the production order = 17 (17%)
  • Quantity completed on the first operation = 90

The assumption is that no yield or scrap exists, so the following is true:

 ordered quantity = quantity planned input on operations = 
         quantity planned output on operations.

Progress factor on first operation:

Quantity completed on first operation/Quantity planned output on first operation 
    = 90/100 = 0.90

If 17 items are received in inventory, a correction factor of 0.17/0.90 is applied to the costs already made on the first operation to account for the overcompletion of the first operation.