Subcontracting operation issues

I’m trying to set up a manufacturing subcontracting process for Galvanisation.
I have the subcontracting WC set up and the vendor linked, and operations in the Routing to use the subcontractor. The subcontracting worksheet works as expected.
We’re using Standard costing in this organisation, FYI.

We want to account for the Galv cost and the associated freight cost separately, so we’ve created GL accounts, and Gen.Prod.PG/Inv PG to suit.
I’ve created an Item for “Galv including freight” and added a production BOM with the Galv cost per kg and a transport cost per kg also - both as non-inventory items so we’re not managing stock. I’ve added that Item to the Prod BOM for the FG Item, with the correct units of measure and quantity.

For example:
We have a single piece Item to go for Galvanisation, weighing 100kg. I need to include the cost of 100kg of “galv including freight” in the production BOM for the parent item so it’s included in the standard production cost. I need to do this for multiple items btw, with different weights - it needs to be flexible so I was thinking of the BOM as the best place to record this cost.

At the moment, BC includes all the materials in the expected material cost, but not this Item - it therefore seems to treat it as a material variance every time.
If I use the item/cost on the Prod BOM, it shows as a material variance.
If I use the cost on the Purchase Order created by the subcontracting worksheet, it shows as a subcontracting variance.

I’m a bit lost tbh, I’ve been trying multiple options on this and I can’t see what to do - has anyone configured this scenario before please?
I’m sure there’s something simple I’m not doing…

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Subcontracting is based on Work Centers and Routing Operations. This will allow you to use the subcontracting worksheet, as noted, and create subcontracting POs.

  • What happens if you setup your subcontracting work center with Direct Unit Cost and enter the operation cost on the routing line?

  • Have you tried to use both direct and indirect costs on the subcontracting work center?

I was hoping to use a routing for this operation which could be reused for different Items (standard process for different items, only differing in the weight and therefore Galv cost), hence trying to add the costs to the BOM for that item. If I specify the unit cost on the routing, it doesn’t allow me to calculate the cost based on the kgs of the item, I have to calculate it manually and add it in the routing line.

I’ve tried both direct and indirect cost on the WC, and they operate as expected. Of course I can use the unit cost setting on the WC, but then there’s only one unit being galved, so there’s no way for me to specify 100kg at that unit cost.

I think this needs to be a cost included in the standard cost for the item, accounted for as a Galv purchase - just like a material being consumed during production…

What am I missing here?

It sounds like you have set up the subcontracting process for galvanization and have created an item for “Galv including freight” with associated GL accounts for the cost. You have also added this item to the production BOM for the finished goods item.

Based on your description, it seems that the issue is with the cost accounting for the “Galv including freight” item. If it is showing as a material variance when included on the Prod BOM or as a subcontracting variance when included on the PO created by the subcontracting worksheet, it suggests that the cost is not being properly accounted for in the standard production cost.

One potential solution is to use a routing instead of a BOM to account for the galvanization and freight costs separately. This would involve creating a separate routing operation for galvanization and linking it to the subcontracting WC. You can then add the galvanization and freight costs as additional costs in the routing operation.

Alternatively, you can try adjusting the cost calculation for the “Galv including freight” item to ensure it is properly accounted for in the standard production cost. You can do this by adjusting the costing method or cost type for the item and/or by adjusting the expected material cost calculation in the production BOM.

Overall, it may be helpful to consult with a NAV/BC expert or a financial accountant to ensure that your cost accounting setup is accurate and aligned with your business needs.