Accounting of costs in production
You can calculate direct and indirect costs related to production considering planned and actual data specified in documents Manufacturing – Intershop management – Stage dispatching – Production stages (select Master data and settings – Manufacturing – Production Management, version 2.2).
To generate production stages, click Generate production stages from the Manufacturing – Intershop management – Order queue management workplace.
You can record actual and planned costs of materials, labor, and finished products by generated production stages. Cost of finished products is further calculated based on registered Production stages documents. The following calculation scenarios of manufacturing costs are available:
- Production takes one month or less.
- Production takes more than one month.
In the first case, all accumulated costs of completed production stages are summed up and allocated to released products in proportion to cost shares specified in bills of resources. If one finished product is specified in the document, quantity of finished products is used as a cost share.
In the latter case (for example, some products are released during one month and the others are released during the following month), costs of released products are allocated individually for each period (month) considering planned data on material consumption and planned data on finished product release.
If side release is detected during production stage completion, the same cost allocation rules as to materials are applied. For example, if defected goods are released, you can allocate costs to an expense item or an asset and liability item.
Materials and works not consumed during production stage execution are allocated in a separate workplace Allocation of materials and works. This workplace is used to work with shop storerooms.
Using the document, you can manually allocate materials and works to the cost of manufactured products with possibility to write-off finished products to expense/asset liability items.
Recording manufacturing costs in bookkeeping
In bookkeeping and tax accounting, expenses allocated to production departments (GL accounts: 20 Main production, 23 Auxiliary production, and 29 Service plants and facilities) are displayed on account debit with the Cost type – Cost item – Groups (kinds) of products extra dimension. Costs are classified automatically by a kind of registered source documents. Available options are the following:
- Material costs with details up to a product item.
- Works with details up to a product item.
- Wage with details up to work kinds of employees.
- Other with details up to expense items.
Actual receipt of product resources by a department does not give the answer on how and when they will be included in the cost of released products.
Dimension by released product kinds
Use the Group of analytical product dimension for economic classification of product items. To use the specified dimension, click Master data and settings – Master data and sections – Financial result and controlling – Financial result – Groups of analytical product accounting.
You can set possible dimension values in the Master data and settings – Master data – Product classifiers – Groups of analytical product accounting list. Analytical accounting group of products is automatically filled in according to product kind settings used for creation of a product item (by a value on the Default values tab) or specified manually in the product item profile of the Products list on the Accounting information tab in the Analytical accounting group field. The parameter is optional as it can be used partially by product groups, or by type of business transactions using a certain product item.
The specified dimension can be used:
- As an accounting dimension when recording product item movements in reporting.
- To divide direct manufacturing costs by analytical accounting groups. The functionality is available only if the Master data and settings – Master data and sections – Manufacturing – Manufacturing costs – Analytical accounting by product groups (kinds) option is selected. Analytical groups allow you to allocate release costs of a specific product kind and can be specified during registration of the costs transfer to a department. Their selection is optional. When being used as a separator of manufacturing costs, analytical accounting groups are named Group (kind) of products. This name is used in cost record documents and as an extra dimension on the following GL accounts of manufacturing costs: 20 Main production, 23 Auxiliary production, and 29 Service plants and facilities.
You can fill in the Group (kind) of products field in the tabular section of the following documents:
- Entry of start balance (the Materials transferred to production operation kind)
- Order for materials for production
- Material transfer to production
- Employee output
- Production stage (production 2.2)
- Production without order (production 2.2)
Specification of the Group (kind) of products value does not ensure pegged usage of direct material and service costs in a department and does not limit allocation of costs registered during transfer to a specific group of released products to other product kinds according to actual release registration. If clear (mandatory) division of direct material and service costs is required, use the feature of cost pegging by orders.
When allocating direct material and service costs to the cost of actually released products, the specified Group (kind) of products dimension determines the priority right to allocate received costs to a specific product kind. They are allocated in the quantity specified in the Route sheet and Write off release costs documents (if you use Production management 2.1), and in the Production stage and Production without orders documents (if you use Production management 2.2), and can differ from the volume of costs transferred by group. In case of any variances, costs included in the cost are automatically reallocated by groups, internal turnover postings are generated based on GL account of manufacturing costs (accounts 20, 23, and 29).
Product group (kind) for direct material and service costs is finally determined when they are included in the cost of released products (performed works).
Data in report Manufacturing – Manufacturing reports – Unfinished production cost control – Manufacturing costs is displayed with grouping by the Group (kind) of products field.
The Group (kind) of products field is not added as a separate grouping in the Manufacturing – Manufacturing reports – Cost analysis – Released product cost and Target and actual cost of manufactured products reports, but it is placed in the available fields of report structure.
In the Gross profit of the enterprise report, grouping By analytical accounting groups is available.
Product release cost
You can record resource assignment only after completion of production stages, during which they were permanently processed. Based on data of already completed business transactions related to release, resource usage can be economically analyzed by determining a costing item. Such approach allows you to avoid parameter specification for expense classification when writing off materials from a warehouse for production needs (direct manufacturing costs). It is enough to specify product items and write-off volume.
Full manufacturing cost of products and works is generated by costing items. You can set a list of available costing items in the Manufacturing – Master data – Costing items list. Here are the main parameters of costing items:
- Costing items group. Defines location of the item in the hierarchical structure of the list. Item place in the group is determined by its actual location which is set in the list form by arrows.
- ID for formulas. Technical name to use values of this item in calculation formulas when generating standard costings.
- Cost type. Cost type based on the common grouping presented in Chapter 25 of the Tax Code of the Russian Federation is selected for costing items:
- Labor compensation
- Recyclable waste
Costing items are used:
- In bills of resources when setting standard demand for resources.
- When creating standard costings.
- To determine types of costs included in cost when products are released.
Costing items are not used to classify expense items allocated to financial result and to generate cost of capital assets.
To receive a standard costing of products and semi-finished products depending on the current stage of a manufacturing process (not started, production in progress, finished), you can use the corresponding functionality in the application. This functionality allows you to calculate target cost of products and semi-finished products and view details up to primary costs with following detailed analysis of variances broken down by semi-finished products and redistributions.
The costing result is a list of all costs (material, labor, itemized) in quantitative and total terms. A bill of resources or a production order (production batch) can be a costing object. Costing results can be further used to carry out variance analysis and to adjust prices of released products.
This functionality is only available if you simultaneously use production management 2.2 and batch accounting 2.2 (FIFO – rolling valuation).
Standard costing of products is made using data on manufacturing costs (bills of resources, purchasing prices of materials, service rates) and on itemized manufacturing expenses (fixed and variable). All direct material and service costs are inherited from bills of resources. Standards of production expenses are used to determine itemized expense standards (Manufacturing – Master data – Production expense standards). Cost type (fixed or variable) is actually determined in an expense item where the To manufacturing costs allocation option is set.
Fixed and variable manufacturing costs are calculated based on set standards of manufacturing expenses that determine the change of product cost to the unit of expense allocation base. For example, electricity expenses due to machine operation can be allocated to finished products in proportion to the weight of metal processed by machines, etc. The planned standard of variable expenses is constant and does not depend on the allocation base value, while standards of fixed expenses, on the other hand, may require update if expense amount or allocation base are changed (for example, if monthly fixed expenses of shop lighting per product unit change depending on release volume).
You can set the standards of manufacturing expenses in the Manufacturing – Master data – Production expense standards workplace. The standards are set individually for each production department with specified validity period (can be without time limit). Also, you can select only one set of standards for one period (month) for each department. The standards are updated using the displacement method (the following document cancels the previous one).
When determining an item and planned expense amount, the allocation base of expense item is picked automatically (from expense item profile). If necessary, you can fill in the document for an arbitrary number of previous months. Expense items directly depending on production volume (for example, increased production volume results in higher electricity consumption by machines) are specified on the Variable expenses tab. Expense items not depending on production volume (for example, shop lighting does not depend on the production volume of products) are specified on the Fixed expenses tab.
You can set the allocation base values of variable and fixed expenses based on existing history (for example, for previous month), or set them manually with the possibility of their specification when entering expenses, or separately on the corresponding tab (Allocation bases). You can use Expense allocation rules with the Allocation of expenses for production batches selected value as an allocation base. You can also use the rules that require material specification as an allocation base. In the latter case, such allocation bases are presented in a document as a name of the first material (source material) and the number of other specified materials (and 1 more item).
Final evaluation of planned itemized expenses is carried out based on production expense standards filled out in the document.
You can control presence and relevance of set standards in a separate workplace Manufacturing – Master data – Production expense standards. The workplace allows you to timely find out that standards must be set (adjusted) for existing production departments.
Actual standard costing of released products (semi-finished products) is carried out in the Manufacturing – Master data – Standard costings workplace.
There is a flexible functionality for product cost calculation that allows you, for example, release products by BOM in kilograms, but calculate their cost in tons.
Depending on calculation results of product (semi-finished product) costing, the document can have the following statuses:
- Costing is calculated
- Costing is not calculated
- Costing is calculated with errors
- Calculation error
If you use batch production, it is recommended that you use a bill of resources as a costing object, and a production order in case of long-term production. In the first case, costing result is always constant, but in the latter case (when production orders are used), costing can be calculated at any moment with different results. For example, if production order is estimated during production that lasts more than one month, then actual data is considered as planned costs for previous period (month).
Based on standard costing of products (semi-finished products), you can carry out additional analysis of results using the following report forms:
- Target and actual product cost (with variance details up to primary costs).
- Target product cost.
- Actual product cost. Defines actual cost of released products based on the results of scheduled month-end closing procedure.
- Planned and actual costs for redistribution:
- Variances from planned costs – calculates the difference between the cost and the amount of consumed purchased materials.
- Variances from consumption standards – defines whether current redistribution caused variance from consumption standard of materials (semi-finished products).
Detected variances of actual values of used production expense standards from the planned ones are evaluated in the Planned and actual production expense standards report.
If series that can be counted both for product consumption, and release are used in production departments (in case of reference application of series), analysis of released product cost can be carried out considering release series by using the Manufacturing – Manufacturing reports – Cost analysis – Released product cost analysis report.
At different production preparation stages, you can additionally analyze:
- Estimate cost of direct manufacturing costs. To do so, use the Cost of materials and works context report which is generated:
- For bills of resources
- For production orders
- For target release cost of products, confirmed bills of materials and executable lines of production orders – the Standard costing documents.
Appearance and a set of fields in the Standard costing document depend on the Production management version used in the infobase.
If you use Production management 2.1, basic parameters of the Standard costing document are displayed on the Main tab:
- Costing object. Object kind for which full target manufacturing cost is calculated:
- Product (or work)
- Bill of resources
- Production order item
One applied standard costing is defined for a costing object at any time according to the displacement rule: a more accurate standard costing displaces a less accurate one, and a new one with later action start date displaces the previous one. For example, when you select a costing for a production order item, the latest costing set for the order line has the highest priority. Validity period must include demand date by order line. If such costing is not determined, the costing of bill of resources selected in the order is applied. Costing set for a product has the lowest priority.
- The Several products (bills of materials, items) check box allows you to create a unified costing for several objects. If the check box is selected, costing objects are specified by clicking a link in a separate window with a tabular section.
- The Specify materials, activity kinds, and expense items check box defines the accuracy of costing preparation:
- If the check box is cleared, then costing item values are set by costing items using two calculation methods: By fixed value and Using formula.
- If the check box is selected, the values are set detailed up to cost structure. The tabs Recyclable waste, Materials and services, Labor costs, and Expense items are available in the tabular section of the document. One more calculation method is applied for costing items – By detailed entries. If this option is selected, costing item value is a sum of amounts specified on corresponding tabs; manual adjustment of such items is not available. To calculate the cost of resources planned for consumption, prices of material items are determined according to the price type selected in the document header, or set manually.
- Costing unit. Number of products the standard costing is prepared for. If a costing object is a product, a costing unit is explicitly specified in the document header. If a costing object is a bill of resources or an order item, all items belonging to a bill of resources or an order line are estimated.
- Materials and waste price type. Default price type for recyclable waste and materials. Costing preparation at different time by one price type, or immediately by different price types allows you to analyze the influence degree of purchasing price change on the cost of released products.
The following items are displayed on separate tabs:
- Costing items. A list of costing items by which target release cost is calculated (full production cost is generated). Item values are set according to the selected calculation method. The order of items in the list is set manually by arrows. A structure of full manufacturing cost is generated. Costing item values displaying general manufacturing expenses or general business expenses are usually set using a calculation formula concerning more important costing items of direct manufacturing costs. Sale expenses that generate a full transaction cost cannot be described by costing items; that is why they do not count in the tool.
- Recyclable waste. Material items to be returned to a warehouse. Amounts by costing items with the Recyclable waste cost type are recorded with ""-"" character as recyclable waste is a finished product recognized at a fixed cost. Recyclable waste reduces product cost.
- Materials and works. Demand for direct material and service costs (materials, works). Cost estimate is set manually, or filled in according to the price type selected in the document header.
- Labor costs. Required number of work kinds with established rates. You can use work assignment to allocate them by costing items.
- Expense items. Itemized expenses with To manufacturing costs allocation option linked to costing items. They are set as a fixed amount or calculated using a formula.
If you use Production Management 2.2, basic parameters of the Standard costing document are also displayed on the Main tab.
- Costing object. Object kind for which full target manufacturing cost is calculated:
- Bill of resources
- Production order
- Materials and waste price type. Default price type for recyclable waste and materials.
Depending on selected costing object, the Bills of resources or Production orders tabs are available in the document. Documents of a corresponding kind, for which standard costing is calculated are selected on the specified tabs.
You can control the Standard costing document using document statuses. Its print form can be approved in accordance with internal enterprise regulations.
During variance analysis by the Target and actual cost of manufactured products report, quantity and cost indicators of standard costing and data of cost calculation by actual expenses are compared. Applied standard costing is selected automatically. It is recommended that you use the report after cost calculation at the end of the accounting period.
Cost calculation options
Product cost is the most important indicator of enterprise business activity. Cost calculation is required to solve the following tasks:
- Determine profitability of production and certain product kinds.
- Find reserves for reduction of product cost.
- Generate enterprise pricing policy.
- Calculate economic effectiveness of implemented innovations.
- Make reasonable decisions on component adjustment of released products.
Cost calculation is a necessary step to generate financial result of an enterprise.
Cost is calculated according to real-time accounting data and displayed in the infobase with the Goods cost calculation documents. There are two available calculation kinds in the document:
- Preliminary calculation. Used by trade companies to determine an estimated cost of purchased tangible assets during the accounting period. Calculation is carried out using average weighted estimate method. Calculated values are used to determine company gross profit.
- Actual calculation. Performed based on the results of monthly accounting period with full calculation of batch movements of direct material and service costs, which allows you to select a method of write-off cost of tangible assets:
- Average per month (average weighted estimate)
- FIFO (weighted estimate)
- FIFO (rolling valuation)
According to the Average per month method, cost of goods is calculated based on average price for accounting period (average weighted estimate) without batch accounting. Common cost value is used both for retired goods, and for available balance at a warehouse.
The FIFO (weighted estimate) method determines batches of goods that must generate cost of available balance at the end of the month. After that, an average retirement cost by which expense of each batch is recorded is determined for retired (sold, written off) batches. Cost of available balance and goods retirement may vary.
According to the FIFO (rolling valuation) method, cost is calculated by FIFO within full batch accounting.
You can specify methods selected for each company in Compliance accounting – Settings and catalogs – Compliance accounting – Accounting policies.
Calculation method for a newly created Cost calculation document will be selected according to data set in company accounting policy. If cost is calculated for a group of companies, a cost evaluation method is common for all companies. Cost for companies using intercompany sales feature must be calculated together.
Data of actual cost calculation type is recorded in bookkeeping.
Actual calculation of cost is performed in the Financial result and controlling – Month-end closing workplace that contains all actions related to accounting period closing.