Calculating operation costs (labor, machine, overhead)

If the work center a main work center, LN first checks the setting of the Type of Operation Rates field in the Standard Cost Calculation Parameters (ticpr0100m000) session. If the parameter value is Work Center Rate, LN reads the work center's operation rate code. A number of labor, machine, and overhead rates have been recorded using the above-mentioned operation rate code for the selected cost calculation code in the Operation Rates (ticpr1150m000) session.

Based on this data, LN calculates the labor and machine costs required to carry out the relevant operation using the following formulas:

Labor costs = labor hours	x labor rate

Machine costs = machine hours x machine rate

Depending on the method used to calculate overhead costs (set via the Operation Rates (ticpr1151m000) session), LN calculates the overhead costs on the basis of the labor hours or machine hours. This is done using the following formula:

Overhead costs = labor hours or machine hours x overhead rate

According to the direct costing principle, no overhead costs are included in the cost calculation code.

The operation costs for the operation comprise labor, machine, and overhead costs.

If the Type of Operation Rates field is Task Relationship Rate, LN reads the task's operation rate code and goes through the same cycle, as described above.