Cost of Production

Hi all,

I got a particular scenario of production for which I need all your assistance.

An item, say X, a batch item, a raw material which we purchase and produce different types of Finished Goods say A, B, and C, these are all batch items. We put X in a machine which gives us Y, also a batch item. Putting different quantity of Y, through some other machines we produce A, B and C.

We Purchased 100 unit of Item X at $ 2



U machine

Produced: Y, Qty:80, $/unit: ?, Total Value: ?

Consumed: X , Qty:100, $/unit: 2, Total Value: $ 200


FG1 Machines

Produced: A, Qty:10, $/unit: ?, Total Value:?, Direct Labour: $50

Consumed: Y, Qty:80, $/unit: ?, Total Value: ?


FG2 Machines

Produced: B, Qty:20, $/unit: ?, Total Value:?, Direct Labour:$ 20

Consumed: Y, Qty:80, $/unit: ?, Total Value: ?


FG3 Machines

Produced: C, Qty:30, $/unit: ?, Total Value:?, Direct Labour:$ 30

Consumed: Y, Qty:80, $/unit: ?, Total Value: ?

Please note that while putting item Y through machines FG 1, 2 and 3, we do not weigh Item Y, as it requires a lot of time. It’s an Operational issue. So we treat Y with 80 Unit through 1 production entry of BOM2 for 1 shift. Machine FG 1, 2 and 3 give us output produced for A, B and C at the end of the shift, which is 10, 20 and 30 respectively. Machine U gives us item Y with produced quantity of 80 unit at the end of the Shift.

Could any one please specify what would be the values in “?” marked places above? And as per scenario would this be correct setup of BOM? If not How would you have the set up. Please response ASAP.

I’m no Production specialist but I think this set up will give us the gross Cost Of Production as because of Operation. Correct me if I’m wrong.


Obviously it depends upon your costing method.

The produced values will be potentially a sum of the raw material consumed and the labour reported. Once you know the costed value of Y then this flows through all of the other processes.

Have you set this up in NAV and tried it to see what happens?

Thanks for such a quick response.

Well yes, now I have a different problem.

We run our production based on the Sales contract (Export Letter of Credit) we get and we try to maitain Just In Time Inventory. So we basically Purchase as per slaes contract. The production cost is also mapped against the Sales Contract, i.e ecah production entry is listed with their respective Sales Contract No. , so that we can have the actual margin of profit or loss for a sales contract. Fixed Costs like allocated proportion of Electricity Bill are treated under overhead cost but costs like direct labour will actually incurr once the production entry are made (Worker might be absent) but before that we require to generate our forecasted production cost to to take in the balance sheet. The varying amount between actual cost incurred and forecasted production cost is my issue. what steps could I take to take the actual incurred cost in balance sheet.

It’s making my head spin and really don’t have much clue on how to have this addressed.

Hope I could clear my issue. In expectance of a quick response.


Again it depends upon your costing method. Standard will recognise the standard cost and post variances accordingly, any other will be the actual sum of labour and parts - not forecasted, this is what you start with. The rest is simply fluff, you want to cost production, so cost the elements you can and report it accordingly.