Production order costing in JSC

Production order costing deals with the production order costs for all items of all production types that are handled in the Job Shop Control module. The costing functionality for order costing of standard items and customized items is the same. You can calculate:

  • Estimated order costs
  • Actual order costs
  • Production results

Note: If the Standard Cost per Enterprise Unit parameter in the Implemented Software Components (tccom0100s000) session is active, estimated and actual order cost calculation are based on the enterprise unit of the warehouse linked to the particular component or end item.

To build up a cost structure for production orders, you must:

Step 1. Define a calculation office

In the Production Order (tisfc0101s000) session you can maintain a calculation office to collect order-related costs. The value of the work in process is also recorded on the calculation office.

In the Sites parameter in the Implemented Software Components (tccom0100s000) session is active, you can use the Production Order (tisfc0101s000) session to specify the site where production takes place.

Note: The calculation office and the location where production takes place must belong to the same site.

Step 2. Decide if the WIP must be stored by work center

In the Financial Transactions by Work Center field in the Production Order (tisfc0101s000) session you can indicate where the work in process (WIP) is posted to.

If the Financial Transactions by Work Center check box is selected, the work in process of materials and hours is stored at work center level. Then you can:

  • Calculate the price and efficiency variance by work center, which can be posted to the financial company of the work center or the calculation office.
  • Make WIP transfers. This is the posting of a certain WIP value (based on estimated costs) from one work center to another on the completion of intermediate operations. Surcharges are always at order level and are posted to the calculation office. When you finish the last operation, the last WIP transfer is done to the calculation office. When the items are received in the warehouse, the WIP on the calculation office is decreased.
Step 3. Freeze estimated production order costs

For comparison with the actual order costs, the estimates must be frozen. The moment of freezing is determined by the Moment Freezing Estimates field in the Production Order (tisfc0101s000) session. Three moments are available:

  • When creating a production order
  • When releasing an order
  • Before the first WIP transaction
Step 4. Have WIP transfers

WIP transfers are postings of a certain WIP (material and hours) value from one work center to another when you complete intermediate operations. As a result, you can calculate price and efficiency variances by work center. In order to have WIP transfers, you must have a cost component structure defined because WIP transfers use the current (effective) cost component structure of the items.

Step 5. Define optional price and efficiency variances

LN calculates a price variance, efficiency variances and calculation variances during the:

  • Closing of an operation
  • Intermediate calculation of production results
  • Closing of a production order

With the parameters in the Production Order Parameters (tisfc0100s000) session you can determine whether LN calculates the price and efficiency results and at which level LN books the calculated efficiency results.

When the Financial Transactions by Work Center field in the Production Order Parameters (tisfc0100s000) session is checked, the production results as well as the price and efficiency variances are calculated at work center level.

For items with an actual inventory valuation method (LIFO, MAUC, FIFO, LOT COSTING) all calculated price and efficiency variances are posted to inventory where a value adjustment is done. If the items are not in stock anymore, the calculation variances are posted to the inventory accounts as a value correction.

If the results are not recorded by work center, the Posting Method Efficiency Variances on Calculation Office check box and the Posting Method Price Variances to Calculation Office check box determine how to post:

  • Not post at all
  • At work center level
  • At calculation office level

The postings for materials cost are done for the following origin/financial transactions:

  • Price variance
  • Efficiency variance
  • Additional calculation office variance
Step 6. Perform intermediate posting of production results

You can calculate the production results and post them without order closure, if:

  • The production receipts are done against the FTP price. So, the inventory is valued against estimated cost after reporting complete finished goods. If you use an actual costing method, the inventory value must be based on the actual costs at the end of each financial period. This is especially the case, when the production order has a high order quantity and a long lead time. At the end of the financial period, the production results can be posted to the inventory ledger accounts.
  • In some production environments production orders are never closed. Only partial deliveries are reported completed.
  • Assembly line items are never posted to inventory. The work in process is only emptied by a sales delivery. Especially in situations with a time lag between reporting an order complete and a sales delivery, an intermediate calculation of production results can be useful in financial reporting.

Related topics