Part Costing

Part Costing

Using Minxware 30

Overview

Cost accounting provides a method of comparing a set of established standard costs to actual costs. This chapter shows you how to set up the cost accounting system; and how to maintain these costs. The chapter also discusses monitoring costs over time, and includes a discussion of the variances produced when standard and actual costs differ.

Costs

There are three types of costs in Minxware: average, proposed, and standard.

Average Cost This is also referred to as a weighted average cost, and is determined by dividing the total cost of a part by the quantity of the part produced. Over time, your average costs are the most accurate reflection of costs for parts. You will normally enter a beginning value for the average cost when first entering parts (if CFV# 49 “Add cost fields in IN,1” is set to ‘yes’). This cost is then adjusted as part costs and quantities change over time. You can then use this cost as the proposed material cost (in the cost file) by using Update Proposed Material Cost With Average Cost (CA,UT,8).

Proposed Costs These are the estimates entered for a part. Use them to see how they compare with standard costs.

Standard Costs The normal expected cost of an operation, process, or product is the standard cost. It can include labor, material, outside processing, and overhead. This is usually computed on the basis of past performance costs, estimates, or work measurements.

Part Costing

Using Minxware 31

Multi-Currency

All transactions in Cost Accounting use system currency.

See the “Multi-Currency” chapter in Volume 1 of Using Minxware for information about setting up your system currency and the operation of the Minxware multi-currency feature.

Calculating Labor and Overhead Costs

The Labor Cost Calculation (CA,UT,1) will calculate new proposed labor and overhead costs for the current level of assemblies. If you are a routing manufacturer (CFV# 26 “Routing Type Manufacture” is set to ‘yes’), the proposed labor and overhead costs will be calculated for you using the routing’s labor hour standards and the work center’s labor rate standards. If you don’t use routings, you can set assembly ‘make’ hours in the part file, and calculate labor and overhead costs using the proposed plant labor and overhead rates defined for CVF# 54 (“Proposed Labor Rate (not routing mfg)”) and CFV# 55 (“Proposed Plant Ovhd (not routing mfg)”). Later in this chapter we show you how to complete the steps for updating labor and overhead costs.

Part Cost Calculations

Before you begin entering costs, review this section, which shows all of the costs associated with a part and how the cost is calculated. Specific instructions are located in the Setup section. Material Cost The calculation of material cost depends on whether the part is a make or purchased part.

Part Costing

Using Minxware 32

Purchased Part This is the material cost of the part only, even if another part is structured below it in the bill of material. In other words, all cost roll-ups begin at the purchase part level and continue only if the next part up in the bill of material is a make, subcontract or blow-through part. If the next level up is a freestock or purchased part, the roll-up resets to zero, starts again at that next level part, and continues upward. Purchased parts are sometimes configured in the bill of material under other purchased parts in order to maintain an engineering history of maintenance parts for a purchased part. An example is the replacement fuse for a power supply. Make Part The material cost is the sum of the material costs for the components of that assembly part. Whether freestock is included in a cost roll-up is governed by CFV# 53 (“Include free stock in cost roll up”). Thus, an assembly’s material cost is the sum of all the material at all levels below it, except for material below a purchased part component or, conditionally, freestock. Freestock is often ignored in a cost roll-up because it is expensed when issued to work in process. If it were included in the cost roll-up it would contaminate the configuration variance at the close of the job. The general practice is to absorb the estimated value of freestock with material overhead on the other components in the product, thereby representing freestock value as overhead in the cost roll-up.

Proposed Material Overhead Factor This cost is associated only with purchased or freestock parts. The proposed material overhead factor allows the absorption of costs directly related to the material cost. For example, it is common practice to use material overhead to absorb the cost of procuring, receiving, and inspecting purchased materials, and to absorb the cost of freestock components within an assembly. There is no corresponding proposed material overhead factor for standard cost because overhead is calculated and stored as a monetary amount. The Cost Roll-Over (CA,UT,3) moves this overhead amount to the standard material overhead field. In a cost roll-up, the material overhead is totaled at the assembly level following the same logic as material cost. That is, purchased parts are ignored below purchased parts. Material cost at the assembly level should never be contaminated with material overhead from the lower level. If an overhead factor is encountered for a make part during a cost roll-up, it should be ignored. In other words, if you change a part from a purchased or freestock part to a make part Minxware overwrites the material overhead with the sum of the component material overhead amounts during the cost roll-up.

Part Costing

Using Minxware 33

Material Overhead Minxware calculates this from the proposed material cost and proposed material overhead factor. When you enter a new part, both the proposed and standard material overhead are calculated. This Level Labor You can enter this cost in any of three different ways. ♦ Enter the desired proposed labor ex pense in the This Level Labor field before selecting a

cost roll-up (do NOT select Labor Cost Calculation (CA,UT,1)). ♦ If you do not have a routing for this part, enter the estimated ‘standard labor hours’ in the

part record and select a cost calculation. Minxware, failing to find a routing record, applies the standard shop labor and overhead rates from the Control File to the standard labor hours for that part.

♦ If you have a routing for this part, enter work centers with labor rate standards and

routings with labor hour standards. Select Labor Cost Calculation (CA,UT,1) to calculate the ‘this level labor and overhead standards’. At your option, it posts them to the proposed labor fields or just prints the comparison report.

This Level Overhead ‘This level overhead’ is calculated for each operation using the same method as above, except that the overhead factor from the related work center is applied to the calculated labor amount. For non-routing manufacturers, this number is calculated using the standard plant overhead rate in the Control File. This Level Outside Processing ‘This level outside processing’ is the outside processing cost specific to this assembly and does not include the outside processing costs from the component levels. It can be calculated in one of two ways. ♦ Enter a total assembly outside processing cost. This requires that CFV# 59 (“Use outside

processing cost from routing”) be set to ‘no’ to prevent a roll-up from routings. ♦ Enter individual outside processing standards for each outside vendor in the routings.

Minxware then calculates the total outside processing cost during a cost calculation and posts it to the part file. CFV# 59 (“Use outside processing cost From routing”) must be set to ‘yes’.

You can use the second option if one or more outside vendor steps are required. The advantage is that the purchase order receipt can pick up the standard outside processing cost for each subcontract step.

Part Costing

Using Minxware 34

Example The following example is for a part, ‘10210’, which is a front panel.

Table 1: Sequence Description Setup Run Work Center 10 Shear length & width .3 .005 Shear 20 Polish one side .0 .1 Assembly. 30 Alodyne, gold Mil-2213 .50 Plato (vendor code) 40 Silkscreen 2.50 Arty (vendor code)

Proposed Outside Processing Overhead Factor This factor, similar in use to the proposed material overhead factor, is used to calculate the overhead associated with buying, receiving, and inspecting the parts manufactured by outside vendors.

This Level Outside Processing Overhead This is applied to the sum of the outside processing standards in the routing file at the assembly level to calculate the outside processing overhead. For non-routing manufacturers, it is calculated by applying the proposed outside processing overhead factor to the standard outside processing cost at the assembly level. Lower Level Labor This is the sum of the components’ this level and lower level labor rolled up to the assembly level. When you do a cost roll-up for either proposed or standard cost, the lower level labor for the components of an assembly are summed and posted to the lower level labor field for each assembly. This makes it possible to recognize the total material only value of an assembly without its corresponding lower level labor costs. Lower level labor is added to the material and overhead costs to calculate the standard value of components issued to an assembly.

Lower Level Overhead Lower Level Overhead =

this level + lower level overhead for the component rolled up to the assembly level

Lower Level Outside Processing Lower Level Outside Processing =

this level + lower level outside processing cost for the component rolled up to the assembly level

Lower Level Outside Processing Overhead Lower Level Outside Processing Overhead =

this level + lower level outside processing overhead for the component rolled up to the assembly level

Part Costing

Using Minxware 35

Cost Accounting Field Change Summary The table below lists the Minxware cost accounting options (in menu order), the part’s source code, and the fields affected. Many selections recalculate the proposed standard cost, which may not be the desired result. Pay particular attention to the order in which you enter/update costs. Review the table carefully before you begin entering costs.

Cost Accounting Option

Source Code

Fields Affected

Proposed Cost Maintenance (CA,1)

All Proposed Standard Cost Proposed Order Qty Proposed Material Cost Proposed Material Overhead Cost Proposed Material Overhead Factor Proposed This Level Labor Cost Proposed This Level Overhead Cost Proposed This Level Outside Processing Cost Proposed Outside Process. Ovhd. Factor

Labor Cost Calculation (CA,UT,1)

‘M’ ‘S’

Proposed Standard Cost Proposed This Level Labor Cost Proposed This Level Overhead Cost

Cost Roll-Up (CA,UT,2)

All Proposed Standard Cost Proposed Material Cost Proposed Material Overhead Cost Proposed Lower Level Labor Cost Proposed Lower Level Overhead Cost Proposed Lower Level Outside Process. Cost Proposed Lower Level Outside Process. Ovhd.

Cost Roll-Over (CA,UT,3)

All All Standard Cost Fields

Move Standard to Proposed (CA,UT,4)

All All Proposed Cost Fields

Outside Processing Cost Calculation (CA,UT,5)

‘M’ ‘S’

Proposed Standard Cost Proposed This Level Outside Processing Cost

Work Order Close for Accounting (CA,UT,6)

N/A No Cost Fields Affected (See the Shop Floor Control chapter of Using Minxware for information about this selection).

Update Overhead Factors (CA,UT,7)

All Proposed Standard Cost Proposed Material Overhead Cost Proposed Material Overhead Factor Proposed Outside Process. Overhead Factor

Update Proposed Material Cost With Average Cost (CA,UT,8)

‘P’ ‘F’

Proposed Standard Cost Proposed Material Cost Proposed Material Overhead Cost

Part Costing

Using Minxware 36

Setup

This section is intended for use when first setting up Minxware Cost Accounting. To change existing costs, use the Application section that appears later in this manual.

Control File Variables Set or verify the following Control File Variables.

CFV Description

26 Routing type manufacturer

49 Add cost fields in IN,1

53 Include free stock in cost roll up

54 Proposed labor rate (non-routing manufacturer)

55 Proposed plant overhead rate (non-routing manufacturer)

58 Collect Labor In SF,TR,6 (not 8/11)

59 Use outside processing cost From routing

See the “System Ut ilities” chapter of Getting Started with Minxware for instructions about setting Control File Variables.

Set Up Part Costs Complete this section, in the order given. The following chart shows the general set up steps.

Part Costing

Using Minxware 37

Figure 2 Set Up Part Costs

Labor Cost Calculation(CA,UT,1)

Enter Proposed Costs (This Level)

CA,1

Costed Bill of Material Inquiry

BM,8

Create Bill of Material for a Part

(BM,1)

Routing Maintenance

(SF,5)

Create Work CenterSF,3

Cost Roll-Up(CA,UT,2)

Outside Processing from

RoutingCA,UT,5

Cost Roll-Over(CA,UT,3)

Costed Bill of Material BM,RP,3

Costed Routing(SF,RP,11)

Cost for a Part(CA,RP,)1

Cost Review AnalysisCA,RP,2

Using Routings

Update to GL

Enter Part/Cost Information

IN,1

Necessary

Optional

Report

Review Current Cost Settings

Part Costing

Using Minxware 38

Enter Parts and Costs If CFV# 49 (“Add cost fields in IN,1”) is set to ‘yes’, you can enter proposed and standard costs when you enter part information with Part Maintenance (IN,1). Otherwise, you must enter proposed costs with Proposed Cost Maintenance (CA,1), and then complete a cost roll-up with Cost Roll-Up (CA,UT,2), and a cost roll-over using Cost Roll-Over (CA,UT,3).

See the “Inventory Control” chapter of Getting Started with Minxware for instructions about entering part and cost information.

Review Current Cost Settings

CAUTION: Since cost information can be entered during Part Maintenance (IN,1) or changed by many Cost Accounting selections, it is advisable to review current settings BEFORE you begin. Use Proposed and Standard Cost Inquiry (CA,2) or Parts Cost Report (CA,RP,1) to report current values.

Set Proposed Material Cost to Average Cost If you use average costing, and you enter an average cost when you add parts and part costs with Part Maintenance (IN,1), you can use this value to set the proposed standard cost, proposed material cost, and proposed material overhead cost for purchase and free stock parts. Usually, average cost is used to set the proposed material cost at year end, when new cost standards are established. However, you can use this value when first implementing cost accounting, if you choose.

CAUTION: Average cost can only be entered if CFV# 49 (“Add cost fields in IN,1”) is set to ‘yes’, AND you elected to add costs when the part was first entered using Part Maintenance (IN,1). If an average cost was not entered (it is zero), this option will set the proposed standard cost, proposed material cost, and proposed material overhead cost to zero.

1. Select Update Proposed Material Cost With Average Cost (CA,UT,8). 2. Indicate whether to continue. 3. If the Minxware database is not shut down, indicate whether to continue.

4. Enter the starting and ending part number, commodity code and class code or (A)ll parts,

commodity and class codes.

Part Costing

Using Minxware 39

5. (A)ccept the options to begin the update.

You can now use Proposed Cost Maintenance (CA,1) to review or modify the results.

Move Proposed Cost to Standard Cost You can move standard cost values to proposed cost values with Move Standard to Proposed (CA,UT,4). Select this option when you are resetting standard costs, and want to use the existing standard cost values as a starting point.

See the Applications section later in this manual for information about moving standard cost values to proposed cost values .

Part Costing

Using Minxware 40

Enter Proposed Costs Select this option if you did not enter costs when part information was added, or you want to review/change existing proposed costs. You should enter proposed costs for all categories of parts (all source codes) for which you must track costs. After all adjustments to the proposed costs are completed, you can roll proposed costs to standard. 1. Select Proposed Cost Maintenance (CA,1). 2. Enter a part number for which to add cost information.

NOTE: All costs use the system currency. If cost information was not added when part information was entered, all cost fields will be zero.

3. Select (E)dit.

Part Costing

Using Minxware 41

4. Enter the line number of the field to change or select ‘All’ to enter all available fields.

Specific Entry Fields

1. Enter the proposed minimum order quantity. For ‘make’ parts, this quantity is used during a cost roll-up to calculate run quantity variances and set-up time for a standard run quantity. For ‘purchase’ parts, this quantity is used to calculate ordering variances and later to calculate work order variances of set-up and run-time hours.

2. Enter the part’s proposed material cost.

NOTE: Usually, material cost for ‘make’ parts is not entered here, since the Cost Roll-Up (CA,UT,2) will calculate this cost for you. If you do enter a cost, a warning message is displayed.

For ‘make’ parts, this cost represents the sum of the material costs of the components of the assembly. If CFV#53 (“Include free stock in cost roll up”) is set to ‘yes’, the cost of freestock items (source code ‘F’) is included when a Cost Roll-Up (CA,UT,2) is completed. For ‘purchase’ or ‘freestock’ parts (source code ‘P’ or ‘F’), this is the cost of the part only, even if another part is structured below it in the bill of material.

3. Enter the part’s proposed material overhead factor.

For purchase or freestock parts, this factor is used to absorb costs directly related to materials. For example, it is common practice to use material overhead to absorb the cost of procuring, receiving, and inspecting purchased materials and to absorb the cost of free stock components within an assembly. An error message is displayed, and you cannot enter a material overhead factor for any other source code.

4. Enter the part’s proposed labor for this level, depending on the following:

NOTE: Usually, ‘this level proposed labor’ is not entered here, since the Labor Cost Calculation (CA,UT,1) will calculate this cost for you.

a. If you are a routing manufacturer (CFV# 26, “Routing Type Manufacture” is set to ‘yes’), and you plan to enter routings (labor hour standards) and work centers (labor rate standards), the proposed labor (and overhead) costs are calculated for you when you select Labor Cost Calculation (CA,UT,1). You can optionally use the calculated values to update this field (this level proposed labor cost).

b. Manual entry.

You can enter the proposed labor costs here, and then use Cost Roll-Up (CA,UT,2). If you use this method, do NOT run a Labor Cost Calculation (CA,UT,1).

Part Costing

Using Minxware 42

c. If you are a non-routing manufacturer (CFV# 26 “Routing Type Manufacture” is set to ‘no’) the ‘make’ labor hours entered when the part was added with Part Maintenance (IN,1) and the proposed labor rate entered for CFV# 54 (“Proposed labor rate (non-routing manufacturer)”) are used to calculate the proposed labor costs, when you run Labor Cost Calculation (CA,UT,1). You can optionally use the calculated values to update this field (this level proposed labor cost).

5. Enter the part’s proposed overhead for this level, depending on the following:

NOTE: Normally, this level proposed overhead is not entered here, since the Labor Cost Calculation (CA,UT,1) will calculate this cost for you.

a. If you are a routing manufacturer (CFV# 26 “Routing Type Manufacture” is set to ‘yes’), and plan to enter routings (labor hour standards) and work centers (labor rate standards) then the proposed overhead costs are calculated for you when you select Labor Cost Calculation (CA,UT,1). You can optionally use the calculated values to update this field (this level proposed overhead cost).

b. If you are a non-routing manufacturer (CFV# 26 “Routing Type Manufacture” is set to ‘no’) the proposed labor cost (see the previous prompt) and the proposed plant overhead rate entered for CFV# 55 (“Proposed plant overhead (non-routing manufacturer)”) are used to calculate the proposed overhead costs, when you run Labor Cost Calculation (CA,UT,1). You can optionally use the calculated values to update this field (this level proposed overhead cost).

6. For ‘sub-contract’ parts (source code ‘S’), enter the costs of processing this part outside

your plant. If the part is a source code type ‘make,’ ‘purchase,’ or ‘freestock,’ a warning message is displayed, but you can enter a factor, but it will not be added into the Proposed Cost.

7. For ‘sub-contract’ parts (source code ‘S’), enter the part’s proposed outside processing

overhead factor. This field is similar to the material overhead factor and is used to calculate the overhead associated with buying, receiving, and inspecting manufacturing processes from an outside vendor.

8. You can now either (A)ccept, (E)dit or (R)eject the information you have entered. Enter Bills of Material During a Cost Roll-Up (CA,UT,2), material cost and material overhead are calculated by adding up the material costs and material overhead of the components on the assembly. If CFV#53 (“Include free stock in cost roll up”) is set to ‘yes’, freestock will be included in the roll-up. If you plan to use the cost roll-up to calculate assembly material costs, you must add bills of material using Bill of Material Maintenance (BM,1), before you continue.

See the “Bills of Material” chapter in Volume 3 of Using Minxware for instructions on entering a bill of material.

Part Costing

Using Minxware 43

Enter Work Centers and Routings If you are a routing manufacturer, and plan to use Labor Cost Calculation (CA,UT,1) to calculate the proposed labor and overhead, you must enter work centers and routings before you continue. If you use outside processing (subcontract) vendors, enter the outside processing standards for each outside step in the routing.

See the “Shop Floor Control” chapter of Using Minxware for instructions about entering work centers and routings.

Calculate Outside Processing Costs If you typically send subassemblies to an outside processing vendor, you can calculate the proposed current level outside processing costs. The values entered for the outside processing operations for the part’s routing (outside processing lead time and standard cost) are used. The proposed standard cost for the part is also recalculated by subtracting the old values for current level outside processing (Proposed Outside Processing Cost + (Proposed Outside Processing Cost * Proposed Outside Processing Overhead Factor)), and adding the new value for proposed current level outside processing (New Proposed Outside Processing Cost + (New Proposed Outside Processing Cost * Proposed Outside Processing Overhead Factor)).

NOTE: ‘Purchase’, ‘freestock’ and ‘non-shippable’ parts (source code ‘P’, ‘F’, and ‘N’) are NOT processed by this selection.

1. Select Outside Processing Cost Calculation (CA,UT,5). 2. Indicate whether to continue. 3. If the Minxware database is not shut down, indicate whether to continue. 4. Enter the printer destination for the labor cost report.

Part Costing

Using Minxware 44

5. Enter the starting and ending part number for which to calculate outside processing

costs.

6. Indicate whether to update the inventory cost fields.

If ‘no’, you can use the resulting report to see the results had you chosen to update the cost file.

NOTE: It is recommended that you first select NO to update. After reviewing the report, you can rerun the calculation and choose to update the cost fields.

7. Enter (A)ccept to generate the report and update the cost fields (if you chose to do so).

Calculate Labor Costs Select this option to calculate current level labor and overhead standards. You will have the option of producing a report only, or producing the report and updating the proposed labor fields. The proposed standard cost for the part is also recalculated by subtracting the old values for current level proposed labor and overhead (Proposed Labor Cost + Proposed Overhead Cost) and adding the new value for current level proposed labor and overhead (New Proposed Labor Cost + New Proposed Overhead Cost). The calculations depend on whether you are a routing manufacturer and are defined below. This Level Proposed Labor Routing manufacturer (CFV# 26 “Routing Type Manufacture” is set to ‘yes’):

proposed labor = ((routing’s cost setup time / proposed minimum order quantity) * work center’s proposed setup labor rate) + (routing’s cost run time * work center’s proposed run labor rate)

Part Costing

Using Minxware 45

Non-routing manufacturer (CFV# 26 “Routing Type Manufacture” is set to ‘no’):

proposed labor = (part’s ‘make’ labor hours * proposed labor rate) Note: proposed labor rate is taken from CFV# 54 (“Proposed labor rate (non-routing manufacturer)”).

This Level Proposed Overhead Routing manufacturer (CFV# 26 “Routing Type Manufacture” is set to ‘yes’):

proposed overhead = ((routing’s cost setup time / proposed minimum order quantity) * work center’s proposed setup labor rate) * work center’s proposed setup overhead factor) + (routing’s cost run time * work center’s proposed run labor rate) * work center’s proposed setup overhead factor

Non-routing manufacturer (CFV# 26 “Routing Type Manufacture” is set to ‘no’):

proposed overhead = proposed labor (from previous calculation) * proposed plant overhead Note: standard plant overhead is taken from CFV# 55 (“Proposed plant overhead (non-routing manufacturer)”).

NOTE: If you are a routing manufacturer and the part does NOT have a routing, CFV# 54 and 55 are used to calculate the labor costs.

1. Select Labor Cost Calculation (CA,UT,1). 2. Indicate whether to continue.

3. Enter the printer destination for the report. 4. If the Minxware database is not shut down, indicate whether to continue.

NOTE: A warning message is displayed if you are a non-routing manufacturer and CFV# 54 or 55 are set to zero. However, you can continue.

5. Enter the starting and ending part number to recalculate labor costs. 6. Indicate whether to update the inventory cost fields.

If ‘no’, you can use the resulting report to see the results had you chosen to update the cost fields.

NOTE: It is recommended that you first select NO to update. After reviewing the report, you can reselect and update the cost fields.

7. Enter (A)ccept to generate the report and update the cost fields (if you chose to do so).

Part Costing

Using Minxware 46

Update Overhead Factors You can enter new overhead factors for both purchase and make parts and update the cost records by part number, commodity code, or class code. Purchase Parts You can update the proposed standard cost and proposed material overhead by entering a new value for the proposed material overhead factor. The proposed standard cost is recalculated by subtracting the old value for proposed material overhead and then adding the new value based on the proposed material overhead factor and the proposed material cost. Make Parts You can update the proposed standard cost by entering a new value for the proposed outside processing overhead. The proposed standard cost is recalculated by subtracting the old value (proposed outside processing * proposed outside processing overhead factor) and then adding the new value (proposed outside processing * new proposed outside processing overhead factor). Update Overhead Factors 1. Choose Update Overhead Factors (CA,UT,7). 2. Indicate whether to continue after reading the warning. 3. If the Minxware database is not shut down, indicate whether to continue.

Part Costing

Using Minxware 47

4. Enter the starting and ending part number, commodity code, and class code to update.

5. Enter the new material overhead factor.

This factor is used when recalculating the proposed standard cost and proposed material overhead for purchase or freestock parts.

6. Enter the new outside processing overhead factor. This factor is used for make parts when recalculating the proposed standard cost.

7. Enter (A)ccept to begin updating the overhead factors.

Roll-up Costs You are now ready to calculate the new assembly, material, lower-level labor, and lower-level outside processing costs in the proposed cost fields for make, subcontract, purchase, and blow-through parts. For ‘make’ parts, the cost roll-up uses the bill of material to determine material cost by adding up the material costs from the components on the assembly. Material overhead is calculated in the same way. If CFV# 53 (“Include free stock in cost roll up”) is set to ‘yes’, freestock is included in the roll-up. 1. Select Cost Roll-Up (CA,UT,2). 2. Indicate whether to continue. 3. Enter the printer destination for the report.

Part Costing

Using Minxware 48

4. If the Minxware database is not shut down, indicate whether to continue. 5. Enter the starting and ending part number to include in the roll-up. 6. Indicate whether to roll up using proposed costs or standard costs.

If you press [RETURN], this field defaults to proposed costs.

Proposed To Proposed Select this when you are first setting up cost accounting, or revaluing all of inventory, in preparation for a cost roll-over.

Standard To Proposed Select this option only when introducing a new assembly between your normal roll-up intervals.

Lower level standard costs are rolled up to proposed costs. You can then roll the proposed costs to standard.

7. Indicate whether to update the inventory cost fields.

If ‘no’, you can use the resulting report to see the results had you chosen to update the cost fields.

NOTE: It is recommended that you first select NOT to update. After reviewing the report, you can reselect and update the cost fields.

8. Enter (A)ccept to generate the report and update the cost fields (if you chose to do so).

Part Costing

Using Minxware 49

Roll-Over Costs The last step is to roll the proposed cost fields to the standard cost fields. After adjusting your material, labor, and overhead costs, the new standards are set for the year or fiscal period. Variances are calculated and posted to GL when the old and new standards differ (the offsetting variance account is the default inventory adjustment account from the posting table).

CAUTION: This selection resets ALL standard cost fields and revalues the associated WIP assembly and component material costs.

1. Shut down Minxware using Minx Shut Down (SU,2). 2. Choose Cost Roll-Over (CA,UT,3). 3. Enter the printer destination for the report. 4. Enter the starting and ending part number to process or (A)ll parts.

5. Indicate whether to update the cost fields.

If ‘no’, you can use the resulting report to see the results had you chosen to update the cost fields.

NOTE: It is recommended that you first select NOT to update. After reviewing the report, you can reselect and update the cost fields.

6. Enter the date to use for the posted changes to the General Ledger. It must be within the current fiscal period.

7. Enter (A)ccept to generate the report and calculate the new standard costs (if you chose

to do so).

Part Costing

Using Minxware 50

Where to go From Here Select the appropriate Cost Accounting reports to verify that the standard costs are properly set. If you find an error, you can correct it and then reselect the Cost Roll-Over (CA,UT,3). Typically, once standard costs are established, they will not be set again until year end, or whenever your company policies dictate. Use the next section (“Application”) when you must re-establish standard costs.\

Reports and Inquiries The following reports and inquiries provide information on what you have entered thus far:

Proposed and Standard Costs Proposed & Standard Cost Inquiry (CA,2) Parts Cost Report (CA,RP,1) Cost Review Analysis (CA,RP,2)

Part Costing

Using Minxware 51

Application

This section shows you how to keep costs current. It also discusses variances and the individual part cost fields.

Reset Standard Costs

CAUTION: Your company policies will determine the actual timing and individual steps involved in resetting standard costs. If you are not sure of the steps, review the Setup section of this chapter.

Typically, once a year you will reset the standard costs in Minxware. The following is an overview of this procedure: ♦ Either move the standard cost values to the proposed cost values with Move Standard to

Proposed (CA,UT,4), or use the current proposed cost values as a starting point.

NOTE: Move Standard to Proposed (CA,UT,4) is discussed later in this section.

♦ Review the cost setup and cost run times for shop floor routings and make any needed adjustments.

♦ Review the standard labor rates and overhead factors for shop floor work centers, and

adjust the proposed fields to the anticipated values.

You can then select Labor Cost Calculation (CA,UT,1) to calculate the proposed labor (and overhead) costs for this level proposed labor and this level proposed overhead standards. You can optionally post them to the proposed labor fields.

♦ Review the purchased part standard material costs and outside processing standards.

Enter the desired values as proposed material cost and proposed outside processing, respectively. If you are using routings, enter the outside processing standards for each outside step in the routing. Then, roll-up outside processing costs using Outside Processing Cost Calculation (CA,UT,5).

♦ Roll-up your costs using Cost Roll-Up (CA,UT,2). ♦ Select Cost Roll-Over (CA,UT,3) to report proposed cost to standard cost changes using

the ‘No Update’ option.

This has no effect on standard costs. You can then review the results and make adjustments where necessary. Repeat this step until the projected inventory value adjustment that will be posted to the inventory reserve account is acceptable.

♦ Just before the first day of the new manufacturing year, make a backup tape of your entire database, and then select Cost Roll-Up (CA,UT,2) and Cost Roll-Over (CA,UT,3) using the ‘Update’ option.

♦ Now that you’ve set the new standards, you can begin working in the new cost year.

Part Costing

Using Minxware 52

During the year, Engineering creates new parts and adds them to bills of materials. If these parts are not assemblies themselves, the proposed cost information is entered for these new parts. Then you must do a cost roll-over from proposed to standard. You can do roll-overs for a part, an assembly and a specified number of levels, or the entire system. If engineering adds a new assembly, it could have a mixture of both new and existing parts as components. Do a one level assembly proposed cost roll-up, and then use the single part roll-over mentioned in 9 above to correctly state the standard cost of the new assembly part.

Move Standard to Proposed Select this option when you are resetting standard costs, and want to use the existing standard cost values as a starting point. The standard costs are moved to the proposed fields based on commodity codes. There is no fiscal impact and no transaction records are written to the General Ledger.

CAUTION: This selection resets ALL proposed cost fields.

1. Select Move Standard to Proposed (CA,UT,4). 2. Indicate whether to continue after reading the warning message. 3. If Minxware is not shut down, a warning message is displayed, but you can continue. 4. Enter a part commodity code to use to select parts, or (A)ll commodity codes.

CAUTION: Selecting ‘All’ will process all parts in inventory that contain a cost record.

5. Enter a factor to increase or decrease the part costs when they are moved to the proposed fields or press [RETURN] to use the default of 1.000 (no factor). For example, if you want the proposed costs to be 80% of the standard costs, enter ‘.8’.

6. Enter (A)ccept to move the costs.

Part Costing

Using Minxware 53

Variances

This section describes the shop floor variances that can be created. Usage Variance Usage Variance = actual material issued - scheduled quantity Notes: Actual material is issued at standard unit cost.

Scheduled quantity is valued at standard unit cost and does NOT include freestock.

Configuration Variance Configuration Variance =

(standard cost of the top assembly * work order quantity) - (standard cost of the components * scheduled quantity (except freestock))

Notes: scheduled quantity does NOT include freestock A configuration variance is created when the work order bill of material is modified after the work order is released. Component, Assembly Material, and Assembly Labor Scrap Variance This is the cost incurred by a work order for material or labor that must be replaced at the work order’s expense. It is calculated only when the scrap is charged to the work order. Material can also be scrapped to an expense account, such as departmental error expense, in which case the work order will not show a scrap variance. Charge Scrap to a Work Order If, when recording scrap, you choose to charge the work order rather than an expense account for a scrapped assembly, the quantity in WIP is reduced and the scrap quantity increased. Therefore, the value of scrap is effectively moved to scrap variance within the work order to be absorbed at job close by the balance of the parts completed. No transaction is written to the general ledger as a result of this transaction. Charge Scrap to an Expense Account If you choose not to charge the work order for scrap, then the expense is relieved from the work order and charged to an expense account. A scrap variance is not recorded against the work order. Scrap is managed within the work order as if the assembly was completed to stock. The quantity scrapped is increased and quantity in WIP is reduced, but the value of the scrapped assembly is transferred out of work in process to a departmental expense account for scrap. This is done with a General Ledger transaction.

Part Costing

Using Minxware 54

If the work order scrap is a component, the value of the scrap is the standard cost of the component being scrapped. Again, scrap can be charged to the work order or to an expense account. If it is charged to the work order, no General Ledger transaction is completed. The value of scrap is accumulated in scrap variance. If the work order won’t absorb the scrap, Minxware must ask for the scrap amount to be used. Methods Change Variance This represents changes in labor rates from the routing of the released work order and the rates actually used. For example, if you changed the routing of the released work order and used a work center that has a different rate from the work center rate on the released work order routing, a methods change variance is created. Lot Size Variance Lot size comes from the order quantity field in the cost record for each part. This represents the variance in the lot size of the work order. Set-up cost for a lot is calculated by multiplying the set-up time from the work order by the rate in effect in the work center. Deviation in lot size provides a greater or lesser cost per unit. Efficiency Variance Efficiency Variance =

earned labor value - actual labor cost Earned Labor = earned setup + earned run Earned Setup = standard setup time from the routing * standard setup labor rate from the

work center Setup is earned for the entire run quantity as soon as one or more parts are issued to an operation. Thus, no setup is earned if parts are issued to an operation that already shows a quantity issued. Earned Run = Units completed through an operation * standard run hours from the

routing file * standard run labor rate from the work center file. Actual Labor = actual hours worked * standard run labor rate from the work center file.

Employee Labor Rate Variance Employee Labor Rate Variance =

(actual labor - actual hours) * employee labor rate from the work center file

Part Costing

Using Minxware 55

Reviewing Variances

You can use the following reports to show variances produced in Purchasing and Shop Floor (Cost Accounting). Purchase Order Variance Report (PO,RP,5) This report lists purchase orders with line item receipts showing any monetary variance between standard and actual costs. It is useful for determining the accuracy of your standard costing procedures and can alert management to problem areas. An item appears on this report only after being received. Minxware won't calculate variances prior to receipt. 'Quoted Unit Cost' is the cost actually assigned to the purchase order. Variances between invoices and quoted unit costs are calculated and reported, here, and in the Accounts Payable module. By carefully manipulating the date range selection in the report options, you can document summary variances for each fiscal period. Open Work Order Projected Variance Report (CA,RP,3) This report has three parts that provide variance information. Part One Part one of this report contains all current material cost information for a work order. The remaining material cost information is sorted by component number, and includes the frozen standard component value of the assembly multiplied by the order quantity and the total configuration variance. Configuration variances can be caused by any of the following: ♦ Bill of material changes after a standard cost roll-up. ♦ Component cost changes without a new standard cost roll-up. ♦ The standard bill of material is changed after release of a work order using Work Order

Materials Maintenance (SF,TR,9). Enter material value charges to the work order at the standard cost of the component at the time of issue. If you change the component standard cost the ‘extended issued cost’ differs from the ‘extended scheduled cost’. The ‘Frozen Standard’ for the assembly is multiplied by the order quantity and the total ‘Configuration Variance’ is calculated by comparing the ‘Extended Scheduled Cost’ to the frozen standard calculation. The ‘Frozen Standard’ is the sum of the material related elements and all lower level cost elements for the standard cost for the assembly plus the material elements of the optional components.

Part Costing

Using Minxware 56

Part Two Part two has all related labor, overhead, and outside processing cost information to date for an open work order. If the part has a routing it is sorted by operation sequence number. If the part does not have a routing the report is sorted by entry date. The Actual labor monetary amount is charged to the work order based on the employee’s individual labor rate (see Employee Labor Ticket (SF,TR,8)) or the work center’s labor rate (Complete Parts at an Operation by Job (SF,TR,6)). Minxware derives earned labor hours from movement through the routing and completion of an operation.

NOTE: Earned value equals standard hours times standard labor rates.

Scrap value reflects only those operations completed or in-process at the time the scrapping takes place. Total labor variance is the sum of scrap labor and the net variance between actual and earned labor. Similarly, overhead variance is the sum of scrap overhead and the overhead net variance resulting from actual vs. earned overhead differences. Part Three Part three displays the assembly summary work-in-process buildup for material, labor, overhead, and outside processing fields. Minxware computes all related variances and lists their distribution accounts. Closed Work Order Cost Report (CA,RP,4) This report is a detailed list of costs and variances related to a closed work order at job close. If you select this report and the work order is production closed the resulting report can be used as a 'what if' analysis. You can still make changes to the work order by re-opening it using Work Order Maintenance (SF,1). If the work order has been closed for accounting and you run this report, the resulting report is considered final and you cannot make any further changes. This report has three parts, providing variance information. Part One Part one of this report shows the assembly's material status. The header information includes the work order number, assembly part number, description, relevant dates, etc. The body of the report lists each component's part number, description, quantity scheduled, quantity issued, quantity scrapped, standard unit cost, extended scheduled cost, extended issued cost, total scrap, component variance, total usage variance, frozen standard component value of the assembly order quantity, and total configuration variance.

Part Costing

Using Minxware 57

Part Two Part two details the assembly's labor status. It shows the operation sequence, work center number, quantity issued, quantity completed, quantity scrapped and actual and earned labor set up hours. It also shows the monetary amounts for run hours, set up, set up overhead, run amount, run overhead, outside processing, scrap labor, and scrap overhead. It also displays the total actual and total earned quantities in each of the labor fields, as well as the total labor and overhead variance. Part Three Part three is a complete cost summary of the work order. It shows the distribution of closed work order variances collected in work -in-process material, labor, overhead, outside processing, and outside processing overhead. Variances are distributed to nine cost of goods sold expense accounts. In addition, unplanned residuals resulting from changes in standard cost or completion of more than the order quantity are distributed to WIP residual accounts.

Part Costing

Using Minxware 58

Posting Information Reference Work order variances are posted only when you select Work Order Close For Accounting (either CA,UT,6 or SF,TR,12). Before closure, WIP is valued at: ♦ the standard cost of the actual materials issued ♦ the standard cost of the actual labor charged ♦ labor overhead based on the standard overhead rate applied to the actual labor

monetary amount ♦ the actual subcontract cost incurred ♦ and subcontract overhead rate applied to the actual subcontract monetary amount less

the standard cost of any assemblies completed to stock. Changes to inventory value based on standard cost changes are posted only when you use Cost Roll-Over (CA,UT,3). At that time, stockroom locations, receiving/inspection, and WIP are revalued. When revaluing WIP, the cost roll-over increases the value of WIP for any increase in the value of the components that were issued to a work order. It also decreases the value of WIP for any increase in the value of assemblies that have been completed to stock. In summary, the cost roll-over revalues WIP to appear as if all materials issued and all assemblies completed were done at the current standard cost.