I manufacture a new FG Item, when I make Report as Finished(RAF) for the specified FG Item, a voucher entry needs to be generated, which can be seen as
Production Order–>Inquiries–>Production Posting–>Report as Finished.
Any setup is available for obtaining the same. If we specifiy the Item Cost Price in the Item Master then voucher entry are been generating, but for the new FG Item, i will be knowing the Cost price for the Item.
You ask for the setup instead of using the estimated cost, and name the parameter controlling this. You either use the estimated cost from the production order, or the one specified in teh costing version/item card. Those are your two choices, they only matter until you end production and run teh inventory close anyway, so it is a transitionary cost.
This “Transitory” cost can be a nuisance if the Ending of Production Orders is delayed for any reason. In the meantime, it may be that there has been an Inventory Transfer or Sale, and the issue cost can be taken up and it can appear in daily Margin reports!!
I am THINKING that the estimated cost from the Production Order may be most rational here. We should always have a reasonable value available from that source. It covers the possibility that for a new item, no Calculation has been performed. What do you think?
I believe you explain the options to the customer and they adopt the one they want knowing the implications of both for the business in set circumstances and can adopt business processes appropriately.
Ummm, yes that is sounds like a good definition of consultancy to me.
I asked my question because I was trying to clarify the implications of the available options!
In this particular case, is the Production Order Estimation likely to provide a more useful value for Report as Finished, or is using the value “activated” or updated onto the item.
I struck a case where a Production Order was processed for an item before a good Costing had been updated to the item. Not for all items, but when it happened, the Report as Finished was processed as very high dollar amounts - way out - millions and billions at times. It may be a bug, or result of someone’s customisation, can look into that.
I realised then that an Estimation would at least do the job that the human had omitted to do. Using Estimation of course makes an assumption that the Bills of Material and Routings are reasonably accurate, but on the whole, I feel it might produce a better status of WIP day to day. i.e. If Report as Finished has been performed, we should have a near-zero WIP and Inventory at the intended value.
If it is millions of millions of dollars out I would say there is a modification impacting here. I maybe a bug but I have yet to hit it so it depends upon version and configuration.
The choice really depends anyway. As Kranthi says analyse where you need them. In a standard costed environment you would not use estimated (arguably) you would use the costing version cost and post variance at end, average would depend upon the movements of the costs, the estimation is at the time it is estimated, the active would be at the point it is booked in. Also depends on the time lag until ended and where the upkeep of costs resides as well as whether the system is updating these.
As for making an assumption that the BOM’s and routes are accurate most systems require this, and if you have massive variances you would need to look at them, if they are that far out they are meaningless you may was rell have none.
You will not get near zero WIP at RAF anyway, the transactions stay in WIP until the order is ended, this is then the true value flushed through, so again comes down to timing.
Thanks Adam. On this occasion, we have a FIFO costing environment - which does not encourage the original cost calculation in the same way that Standard Cost does. I would rather have a reasonable BOM and routing than none - whether I use Original Costing value or Estimation Value for RAF, either will be closer to the mark than zero!
Once we have all components issued, all routing feedback posted, and Report as Finished Complete - I think we will see a Report as Finished that is close to zero, if you look at all open Production Orders at month end.
I am looking for way to get a more realistic picture than zero at one extreme or large silly numbers at the other!
In summary, perhaps under FIFO, there is nothing to lose by taking Estimation value in preference to Cost Calculation value. In an ideal world they would be the same, but getting latest unit costs for everything in a FIFO environment - in order to produce a realistic RAF - might be most acceptable.