Correction for issued materials

Materials are often issued before work on the production order is started. Consequently, the first partial delivery of end items to inventory carries all material costs and is, therefore, much more expensive then the next deliveries. If you apply actual costing, a correction must take place to avoid that all material costs are posted on the first delivery. A correction factor for material costs is applied by LN if the ratio of actual material quantity and estimated material quantity is higher than the production order's completion ratio.

Correction factor:

Expected actual material quantity / Actual material quantity 
=(Completed order qty / Planned order qty * Estimated mat. qty ) / Actual material qty 
=(Completed order qty / Planned order qty) * (Estimated mat. qty / Actual material qty)
Example

Material PARTA for production order ZZ0000300:

  • Ordered quantity: 10
  • Completed quantity: 2
  • Estimated quantity PARTA: 20
  • Actual quantity PARTA: 10
  • Issue costs for PARTA: 150 EUR

Correcton factor = (2/10) * (20/10) = 0.40

Expected material costs = Actual material costs = 150 * 0.40 = 60 EUR.