Production Costing

An essential part of any manufacturing or production process is the maintenance of accurate costings so as to provide the production department and accounting staff with performance cost comparisons both during and at completion of each part of the process.

Firstly a budgeted or estimated cost of manufacture or production needs to be established for the finished goods, build or repair process. This needs to distinguish between breakeven or profit based accounting within the department or work group. Budgeted costs can be established from the bill of materials costings, specified inputs to the processes, fixed costs that can include labor only, machine only, materials only, overheads only or any combination of the above, or the actual time and materials costs. Where fixed cost is used, this is frequently the result of the sales department requesting a fixed cost quote in whole or in part from production prior to providing the customer with a price.

Having established an expected cost of production, actual costs need to be accumulated into work in progress as the manufacture or production process is progressed. Actual costs result from purchased items, stock usage, expense items, labor timecards, machine usage and sub assembly costs. Any or all of the costs, excluding sub assemblies, can be back flushed. As Abel is fully integrated, costs are instantly posted to the production order WIPs and to the General Ledger WIPs accounts in the Balance Sheet.

As orders are part or finally completed, postings are credited against the orders WIPs and to the General Leger that reflect the finished goods into stock, finished goods to be dispatched to customers, repaired items to be dispatched and invoiced and sub assemblies costed upwards to their parent order. Where possible the manufacturing and production variances are declared and posted. Variances can be lumped together or split by labor, machine, materials, overheads and sub assembly work.

Make to stock items commonly enter inventory stock at standard or budgeted costs. Make to order items are usually transferred to the customer dispatch process at budgeted cost that established the cost of goods when invoiced. Product builds and repairs frequently use time and materials and or fixed costs to establish cost of goods at invoice time. However any costing process can be used according to your accounting rules.
Various online views and reports are available for analyzing these performance results.