Repetitive Cost Accounting in a Production and Process Order Environment
- by Cyril Johannes, CMA, Independent Consultant
- February 27, 2015
Learn how to configure and use product cost collectors (repetitive) to capture and control production and process order costs.
After reading this article, you will know how to:
- Determine if this solution is right for you
- Identify the proper configuration
- Execute the finance period-end close process for this new solution
A hybrid order type for production moves the cost object from the production or process order to a product cost collector. This enables the use of orders for control of production and the aggregate recording of production costs, along with analysis to a product level. This is delivered functionality without the need for complex creative solutions or the acceptance of the burden or rigors of shop-floor accounting for orders.
Repetitive manufacturing control and order manufacturing control are very distinct and they are at the opposite ends of the control and details spectrum. Repetitive manufacturing typically is an ongoing production process that does not require batch number or serial number tracking of the items being produced. The product design may have variations, but it is considered stable and not subject to change during each production run. Manufacturing activity typically is repeated throughout the month. Costs are collected, activities are reported, and inventory transactions are processed at the aggregate level for the month. Repetitive manufacturing is considered to provide the least amount of details for specific individual production runs during the month and it requires the least amount of control because you are producing to a scheduled quantity and not to individual orders.
With order control manufacturing, the execution of each individual order is scheduled and controlled. Each production run can differ in the materials used and processes performed due to the availability of resources. Batch numbers and serial numbers can be assigned to the output of each production run. Transactions, such as material consumption and activity confirmations, are performed and captured at the order level. Costs are collected and analyzed at the order level. Order manufacturing has the highest level of control and details for each individual production run.
You can use both repetitive and order control simultaneously to control manufacturing and collect costs. For example, you have two very different product lines. One is high volume and mass produced. The other is a customizable or standard product that is required to be serial number or batch number controlled. The high volume production typically would be controlled with repetitive manufacturing and the reporting of production activity, including costs would be collected and analyzed on an aggregate basis. Manufacturing of serial number or batch number controlled customizable or standard products is typically controlled by the use of orders. Production activity and costs are collected and analyzed at the individual order level.
You can use both order and repetitive manufacturing simultaneously to control and analyze their respective types of production activity. You cannot use repetitive manufacturing for production and control of products that are serial number or batch number controlled. Only orders support this process. You cannot record production activity and costs on an aggregate level when you use orders to control manufacturing. Production activity and costs are collected on cost objects. For repetitive manufacturing, the cost object is a product cost collector, which is created for a specific material and not an individual production run. For order-controlled manufacturing, the cost object and collector of production activity is the order for each individual production run.
This was true before the inclusion of functionality that facilitates the use of orders to control manufacturing and product cost collectors (repetitive) to record and control costs.
Why is this important and relevant to you? A major challenge when implementing and maintaining a software package is matching the business model with the singular design paths, such as using repetitive controls for only repetitive type manufacturing and orders for order type manufacturing.
Some manufacturing processes appear at first sight to be repetitive manufacturing, but require a lot number or serial number for tracking and control. Others have external operations (tolling). Both of these requirements are normally addressed in order manufacturing and not in repetitive manufacturing because the functionality only exists in order control manufacturing.
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