Technical Notes for Production Order Costingbaansupport.com/docs/baan/Production order costing.pdf · 6 Work in process 6-1 ... functionality during the flow of a production order

BaanERP 5.0c Manufacturing

Technical Notes for ProductionOrder Costing

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Baan Development B.V.P.O.Box 1433770 AC BarneveldThe Netherlands

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© Baan Development B.V. 2001.All rights reserved.

The information in this documentis subject to change withoutnotice. No part of this documentmay be reproduced, stored ortransmitted in any form or by anymeans, electronic or mechanical,for any purpose, without theexpress written permission ofBaan Development B.V.

Baan Development B.V.assumes no liability for anydamages incurred, directly orindirectly, from any errors,omissions or discrepanciesbetween the software and theinformation contained in thisdocument.

Document Information

Code: U7580A USGroup: User DocumentationEdition: ADate: March, 2001

i

Technical Notes for Production Order Costing

1 Introduction 1-1Purpose 1-1Definitions, acronyms, and abbreviations 1-2References 1-4

2 Production Order Costing parameters 2-1CST parameters on the Costing Tab on SFC parameters 2-1Results by work center 2-2Posting Method efficiency variances/Posting Method price variances 2-4WIP transfer method 2-5Parameters on production order header level 2-6Moments of freezing estimates 2-6Calculation office 2-6WIP transfer component 2-6Other important fields on production order 2-7

3 General information 3-1Introduction 3-1CPR versus CST 3-1WIP and Inventory Transactions (SFC/PCS) (tcfin100) 3-1Multicurrency on forms and reports 3-2To specify invoice relation 3-3Surcharges 3-3Cost component aggregation 3-4Specify cost components to be tracked in detail 3-4Use of the effective cost components 3-6

4 Production orders 4-1Introduction 4-1Calculation of variances 4-1WIP transfers 4-3Example of production order costing functionality 4-4Data for this example 4-4Parameter settings 4-5Generation of a production order 4-5Release of the production order 4-6Operation 10 4-7Operation 20 4-8

Table of contents

Table of contents

Technical Notes for Production Order Costingii

Operation 30 4-9Completion of the production order 4-10To close the production order 4-10

5 Financial transactions 5-1Overview financial transactions 5-1Overview list financial transactions 5-1Example 5-2Details on financial transactions 5-3General 5-3

6 Work in process 6-1Work in process 6-1

Technical Notes for Production Order Costingiii

This document starts with an overview of important parameters. Next, thisdocument provides some general information and additional details onproduction orders, including an example of production order costingfunctionality during the flow of a production order. Chapter 4, �Productionorders,� contains an overview of the financial transactions including examples.Based on the financial transactions, the user can calculate WIP, and thisprocedure is explained in Chapter 5, �Financial transactions.�

About this document

About this document

Technical Notes for Production Order Costingiv

Technical Notes for Production Order Costing1-1

PurposeThe purpose of this document is to provide additional insight, information, andexamples on the production order costing functionality. For this release, nofunctional design is present. Because the costing functionality changed greatlycompared to BAAN IV, customers and support ask a great number of questions.

The present documentation provides an overview of this functionality, but insome cases more detailed descriptions are required. Also, examples can behelpful in understanding the production order costing functionality.

1 Introduction

Introduction


Definitions, acronyms, and abbreviationsTerm DescriptionActual Costing To use actual valuation methods to calculate the

valuation price of end items.Actual ValuationMethod

A valuation method that uses the realized productioncosts to determine the valuation price of the end item.Methods are: LIFO, FIFO, MAUC, and lot costing. FTPis not an actual valuation method, because acalculated value is used as inventory value.

Additional Calculation(Office) Variance

The remaining value necessary to clear the WIP onthe production level and the work center level aftercalculating efficiency and price variances.

Calculation Office The calculation office is a work center that determinesthe enterprise unit for a production order. The costsand results that are calculated and posted on theproduction order will be posted to the financialcompany of the calculation office. Thus, the calculationoffice carries out administrative functions, but can alsoact as a normal work center, even in the sameproduction order.

Fixed Transfer Pricing An inventory valuation method. The fixed transfer priceis a calculated inventory value, based upon calculatedmaterial costs, operation costs, and surcharges. TheFTP valuation prices include the surcharges bywarehouse. However, this only includes warehouseissue surcharges of the materials that are issued for aproduction order. Receipt surcharges by warehouseare not included.

Inventory Valuation A function to calculate the inventory value price byitem and warehouse. Inventory valuation is based onand triggered by a particular end item receipt.

Moving Average UnitCost

A method of inventory valuation for accountingpurposes. The inventory value is expressed as anaverage of the total current item inventory.

Operation Set A group of operations that are subsequently executedin the same work center.

Production Results The variance between production costs and theamount of receipts, which is recorded at the momentthe production order is closed. The production resultsare split into:Price variancesEfficiency variancesCalculation (office) variances

Introduction


Unlinked Materials Materials linked to a production order without arouting.

Valuation Method The valuation methods referred to are FTP, MAUC,LIFO/FIFO, and Lot Costing. Valuation methods areused to determine valuation prices by item andwarehouse.

Work in Process (WIP) The amount of materials, hours, and other productioneffort, which is consumed, on the shop floor byproducing manufactured items, which are not yetreported complete.

CI BaanERP Central InvoicingCPR Cost Price Calculation, module in BaanERP

Manufacturing.CST Production Order Costing, module in BaanERP

Manufacturing.EMM Enterprise Modeling Management, module in

BaanERP Common.FIFO First in First OutFTP Fixed Transfer PriceGLD General Ledger, module in BaanERP Financials.LIFO Last in First OutMAUC Moving Average Unit CostsPCS Project Control, module in BaanERP Manufacturing.SFC Shop Floor Control module in BaanERP

Manufacturing.SLI Sales Invoicing module in BaanERP Central Invoicing.TC BaanERP Commontcfin100 Acronym for the WIP and Inventory Transactions

(PCS/SFC) table.TF BaanERP FinancialsTI BaanERP ManufacturingWIP Work in ProcessWH BaanERP Warehouse Management

Introduction


References[Baan, Henk de Man]

Baan Development B.V.Baan Va As Built

[Baan 1998, Carola Persoon]Baan Development B.V.CostingP3011A US

[Baan 1999, Claudia Smit]Baan Development B.V., Shop Floor ControlProduction Order Costing (Functional Design)D1371A US

[Baan 2000, Wim Ruiter]Baan Development B.V., Warehouse ManagementFinancial TransactionsM2038A US

Parts of these documents are copied and extended, or updated when required.


CST parameters on the Costing Tab on SFCparameters� Results (WIP) by Work Center.

− Yes.− No.

� Posting Method Efficiency Variances.− On Work Center.

This setting is only possible if Results by Work Center is Yes.− On Production Order.− Not Implemented.

� Posting Method Price Variances.− On Work Center.

This setting is only possible if Results by Work Center is Yes.− On Production Order.− Not Implemented.

� WIP Transfer Method. Note that this parameter is only enabled when Resultsby Work Center is Yes:− Always.− Only upon completion.

2 Production Order Costing parameters

Production Order Costing parameters


Results by work centerA check box is available that enables users to decide whether to view theproduction results either by work center or by production order.

The following figure explains the concept.

Calculation Office

MATERIALSHOURS

SURCHARGESProduction order

Cost structures if the production results are on production order level

Workcenter

Workcenter

Workcenter

Calculation Office

MATERIALS

HOURS

SURCHARGESProduction order

Cost structures if the production results are on work center level

This parameter influences several processes, is very important for productionorder costing, and impacts on the financial transactions posted for a productionorder.

If you do not want WIP by work center, the costs are stored on production orderlevel. In this instance, the costs are posted to the calculation office, becausekeeping track of the costs for each individual work center is not relevant.



If you use a dependent currency system to calculate the estimated costs, thisparameter also determines the currency that must be used. If you want results bywork center, the local currency of the work center for which the costs arecalculated is used. Otherwise, the currency of the calculation office is used. Thiscurrency is also used for unlinked materials, which is when a production orderhas no operations, and therefore no work centers, but only materials.

The calculation of the estimated end item unit costs also depends on Results byWork Center. The cost view is important in this case (item based/work centerbased).

Production Results byWork Center

Work center based costs Item based costs

No 1 2Yes 3 4

The cost view shows the following:

� The total end item unit cost for each work center by detailed costcomponents. In this case, the only work center available is the calculationoffice. The amounts are expressed in the currency of the calculation office.

� The end item unit costs of the calculation office on the effective costcomponents. These cost are stored in the currency of the calculation office.

� The end item unit costs on detailed cost components for a work center or forthe calculation office. For a work center, this view contains operations costsand materials costs. Postings for (added) end item surcharges and forunlinked materials are shown on the calculation office. The amounts arestored in the local currency of the work center.

� The end item unit costs for the calculation office on the effective costcomponents. The amounts are expressed in the currency of the calculationoffice.

WIP transfer calculation is never performed if Results by Work Center is set toNo. If the results are only shown on the calculation office, WIP transfers betweenvarious work centers are not necessary because no costs are posted to the workcenters.

The process that determines WIP also depends on the Results by Work Centerparameter. If this parameter is set to No, the work centers will not have WIPvalues. In this case, only on production order level is there WIP, therefore, on thecalculation office of the production order.



During closing orders, the Results by Work Center parameter defines the levelon which the price and efficiency variances are calculated. However, the postingdepends on the posting methods, which are explained later.

Posting Method efficiency variances/Posting Methodprice variancesThese parameters indicate the financial company to which the price andefficiency variances are posted in case of anonymous FTP valued end items. Ifactual costing is used for the end item, the variances are posted to BaanERPWarehouse Management. The variances of production orders linked to a PCSproject are posted to the project calculation office. For more information, referalso to the examples of financial transactions in Chapter 4, Production orders.�

The price and efficiency variances are calculated by work center and costcomponent. The user can choose where to post these variances. Three options areavailable, which you can set uniquely for price and efficiency variances.

On Production Order (Calculation Office)

Although the WIP is posted to the work center, the user can post the price andefficiency variances to the calculation office. As a result, the work centers areresponsible for the amount of WIP, but the company is only interested in theprice and efficiency results on order level. If the calculation office and workcenter have different currencies, a conversion must be performed. At the momentof posting, the exchange rate that is valid at that moment is used.

If the WIP is not stored on work center level, the variances can only be posted tothe calculation office of the production order. In this case, the results cannot becalculated by work center, because the actual costs are not posted to workcenters, but to the calculation office.

On the work center

This option is only available if Results by Work Center is set to Yes.

The price and efficiency variances are posted to the work center. The work centeris responsible for the amount of WIP and for the price and efficiency variances.This process is often carried out in situations where work centers are financiallyresponsible for the operations.

NOTE



Not applicable

The price and/or efficiency variances are not calculated separately and areincluded in the calculation variances. Calculation variances are posted to thecalculation office. For financial reporting, information on efficiency variancesand/or price variances is lost.

WIP transfer methodThis parameter is only enabled if Results by Work Center is set to Yes.

WIP transfer amounts are based on the estimated end item unit costs andcalculated at the moment the estimated costs of the production order are frozen.

The following values are available:

Always

If the field value is Always, WIP transfers are generated during reporting aquantity completed on the operation, and the next operation is executed inanother work center. The operation does not have to be fully completed yet. TheWIP transfer amounts are multiplied with the reported quantity to get the totalWIP transfer amount for the financial transaction.

Only upon completion

In this case, the WIP transfer takes place only when the operation is fullycompleted, and the operation is executed in a work center other than the currentwork center.

In this instance, operation completion is used here, and not production ordercompletion.

NOTE

NOTE



Parameters on production order header levelYou can specify these parameters for a production series in the defaultproduction order data. You can also enter or modify these parameters if aproduction order is created manually.

Moments of freezing estimates� On order creation.

The costs are frozen as soon as the production order is generated. As a result,you cannot update the estimated costs for this type of order.

� On order release.The costs are frozen when the production order is released.

� Before first WIP transaction.The costs are frozen when the first WIP transaction takes place. This occurseither when materials are issued, when hours are processed, or whenquantities are reported as completed. This means that the estimated costs canstill be modified when the production order has the status planned orreleased.

A WIP transaction, which is a financial transaction, must not be confused with aWIP transfer.

Calculation officeThis is the calculation office of the production order. The calculation officedetermines the financial company and the currency of the production order. Allcosts and results that are posted at production order level are posted to thefinancial company of the calculation office. The end item receipt surcharges andcosts of unlinked materials are always posted to the calculation office, as well ascalculation office variances. The price and efficiency variances postings aredetermined by the parameters described in Chapter 1, �Introduction.�

A calculation office is not a separate entity or type, but a standard productionwork center, defined in the routing module. The calculation office can be definedfor administrative purposes only, but can also act as a standard work center.

WIP transfer componentThe WIP transfer component is the cost component on which the WIP transfersare gathered, and coming in at the next work center. This component must be oftype WIP transfer. This cost component is only relevant if the user wants to haveresults sorted by work center.

NOTE



Other important fields on production orderTo avoid problems when the user switches the parameter during the life cycle ofthe production order, the value of the Results by Work Center parameter iscopied to the production order.

The Estimated Costs Frozen field indicates whether the estimates are frozenyet. If the estimated costs are frozen, the end item unit costs and WIP transferswill be calculated, and can no longer be changed.

The Actual WIP Transaction Done field indicates whether financialtransactions are already posted for the production order. If transactions arealready posted for the production order, the estimated costs will certainly befrozen.

If the Definitive Closed check box is selected, the closed order can no longer bereset to Completed. In this situation, the financial transaction of the order arealready removed from WIP and Inventory Transactions (PCS/SFC) (tcfin100)table.

If the production order is linked to a PCS project, the project costing data arefilled in. All the financial transactions will contain the project specified in thiscase and variances are posted to the project calculation office if the end item isvalued against FTP.




IntroductionBefore discussing further details on production orders and financial transactions,this chapter will provide general information about several concepts andprocedures. Much confusion often exists on these topics. For this reason, thischapter discusses each of these topics individually before using the topics in theexamples.

CPR versus CSTThe Cost Price Calculation (CPR) module and the Production Order Costing(CST) module are often confused for each another. A relation exists betweenthese two modules, but the functionality of each module is very different.

CPR calculates cost prices for items based on bill of material, routing, andeconomic order quantity. Cost prices will usually be calculated periodically.

CST, however, handles all costing aspects of a production order. This concernsboth estimated and actual costs. The estimated calculations are based on theproduction order data: materials used, production planning, and order quantity.This does not necessarily have to be in accordance with the BOM, routing, orEOQ. Values in CPR are used to perform the estimates calculations. The actualcalculations are based on the actual financial transactions posted for theproduction order. The production order includes the calculation of productionresults when a production order is closed.

WIP and Inventory Transactions (SFC/PCS)(tcfin100)The WIP and Inventory Transactions (SFC/PCS) (tcfin100) table is used to storethe financial transactions related to SFC production orders and PCS projects.

Financial transactions are often referred to as WIP transactions, and must not beconfused with WIP transfers.

3 General information

NOTE

General information


Technically, BaanERP Financials logs these transactions when the IntegrationTransaction (tfgld410) table in the General Ledger (GLD) module of BaanERPFinancials is updated. This step is carried out whenever one of the packages inBaanERP logs an applicable transaction. As a result, financial transactions arealways present in both General Ledger and TCFIN. This chapter provides anoverview of the possible transaction origin/financial transaction combinations, aswell as a more-detailed explanation.

Keep in mind that the from-side of the WIP and Inventory Transactions tablecorresponds with the credit posting in BaanERP Financials and the to-side isequal to the debit posting.

In the Shop Floor Control (SFC) module, you can use the transactions in the WIPand Inventory Transactions (SFC/PCS) (tcfin100) table to determine the WIPvalue and calculate the production results.

The Project Control (PCS) module uses the table to determine the project WIPvalue and calculates the actual project costs, general project results, and generalcosts of goods sold.

Multicurrency on forms and reportsIn BaanERP Manufacturing, the multicurrency handling on forms and reports isconsistently handled. If an independent currency system is used, the RotateCurrency button is enabled and the user can rotate the amounts between thespecified reporting currencies, with a maximum of three. For a single currencysystem, only one currency is available. For a dependent currency system, a morecomplex handling is required.

For most reports, the following options are available:

� Home.All amounts are printed in the reference currency of the company. In thissituation, the user cannot specify a currency.

� Office.Detailed report lines are expressed in the production order calculation officecurrency. The totals are printed in the currency specified by the user.

� Local.Detailed report lines are expressed in the local currency of the involved workcenter or warehouse. The total amounts are printed in the currency specifiedby the user.

General information


� Any.All the amounts on both detailed and total report lines are printed in thespecified currency.

To specify invoice relationThe financial transactions WIP Transfer (Issue Invoiced) and WIP Transfer(Receipt Invoiced) described in Chapter 5, �Financial transactions,� are onlycreated if you specify invoice relations. To specify invoice relations, use theEnterprise Modeling Manager (EMM) module in BaanERP Common.

First, you must specify the goods transfer in the Goods Transfer(tcemm2150m000) session.

The price type can be the commercial price of valuation price. If a commercialprice is used, you can enter the price on the order line normally. You can alsoapply a surcharge.

However, for WIP transfers with invoicing, the transfer price is always takenfrom manufacturing. The price type and surcharges are not taken into account forthis situation.

After the goods transfer, you can specify a relation between either twowarehouses, two departments, or a department and a warehouse in the Entity �Entity Relationships (tcemm2110m000) sessions. The Application Process fieldin this session contains the goods transfer type.

SurchargesFor a number of transaction origins, including Production, you can makesurcharge postings. In all cases, all surcharge postings are handled more or lessthe same.

Surcharges can be specified by item or item group in the Cost Price Calculationmodule in the Item Surcharges (ticpr1110m000) session.

The following four types of surcharges are possible:

� Item Receipt surcharges.� Warehouse Receipt surcharges.� Item Issue surcharges.� Warehouse Issue surcharges.

General information


When you receive an item in inventory, the receipt surcharges are posted and areceipt transaction is created. The total inventory value is the receipt amount plusthe receipt surcharges amount.

When you issue an item from the warehouse, issue surcharges are posted first,which increases the inventory value. Next, an issue posting is performed. Theamount of the issue posting includes the issue surcharges. The issue amountincludes all the surcharges. You must keep this fact in mind when you calculatethe WIP value.

InventoryReceipt 100

Receipt Surcharges 20

Issue Surcharges 30 Issue 150

Cost component aggregationSpecify cost components to be tracked in detailIn BaanERP 5.0b (Grieg), three aggregated cost components were introduced onthe Item Costing Data (ticpr007) table. The valuation prices of items were alwaysstored using these cost components. As a result, several financial postings arealso carried out using these cost components. This reduces the number oftransactions required, compared with a situation in which everything is postedagainst detailed cost components. This also results in a loss of detail, becauseonly the aggregated cost components are used. To solve this problem, a solutionwas introduced which provides the user with the option to specify which detailedcost components must be used. If the user does not want to use this solution, thefunctionality remains the same as in BaanERP 5.0b. After you specify that allcost components must be tracked in detail, the item valuation price is stored indetail and every related financial transaction uses the detailed cost components.You can also specify only a small number of (important) cost components. Thecosts specified on cost components other than the cost components you specifywill be aggregated to the three aggregated cost components in this situation. Toclarify this functionality, an example is provided later.

General information


A session is present in TCIBD to specify the detailed cost components inaddition to the three aggregated cost components. When actualizing the valuationprices, the detailed cost components are also actualized and stored by effectivedate.

Assume that the following detailed data is present:

CostComponent

Amount Type of CostComponent

Must be trackedin detail

101 100 Material Costs Yes102 50 Material Costs Yes103 150 Material Costs No201 20 Operation Costs Yes202 40 Operation Costs No301 5 Surcharges Yes302 15 Surcharges No303 10 Surcharges No

Because the amounts on the components 103, 202, 302, and 303 do not have tobe tracked in detail, the amounts will be accumulated on the aggregated costcomponents. Assume that these cost components are called M, O, and S. Thestructure, according to the specified template, will resemble the following table:

CostComponent

Amount Type of CostComponent

101 100 Material Costs102 50 Material CostsM 150 Material Costs201 20 Operation CostsO 40 Operation Costs301 5 SurchargesS 25 Surcharges

The aggregated cost components only contain the difference between the totalamount, and the amount that must be tracked in detail.

EXAMPLE

General information


Use of the effective cost componentsIn the Cost Price Calculation (CPR) module, the valuation prices are stored oneffective cost components instead of aggregated cost components. The effectivecost components contain the aggregated cost components of item costing dataand the specified detailed cost components.

The valuation prices are calculated detailed and the inventory revaluation mustbe based on detailed cost components. During the cost price calculation, thechanges in the aggregated and/or detailed cost components must also be madeeffective.

In addition, in the Production Order Costing (CST) module, the functionality haschanged compared to BaanERP 5.0b. The estimated end item unit costs must becalculated on detailed cost components. Many postings, such as material issue,production completion, and production receipt, must be based on the effectivecost components. For more information, refer to the description of the financialtransactions in Chapter 5, �Financial transactions.�


IntroductionThis chapter describes several concepts related to production order costing indetail. In addition, this chapter provides an example that describes costing issuesduring the flow of an SFC production order.

Calculation of variancesIf a production order or operation is closed, the variances are calculated. If theactual costs for a production order differ from the estimated costs, variances willoccur. This can be the case, for example, if materials were unexpectedly spoiledor when the operations went faster than planned. Production results can bedivided into price variances, efficiency variances, and additional calculationoffice variances, also called calculation variance.

The additional calculation office variances are used to clear the production orderWIP. These variances can occur when the Fixed Transfer Price (FTP) of the enditem is changed, when differences exist between estimated and actual surcharges,when the ordered quantity is changed, or when price and/or efficiency variancesare not wanted (Posting Method parameters).

If the production order WIP is recorded at work center level, the price andefficiency variances are calculated at the work center level on detailed costcomponents. If the item is valued using a Fixed Transfer Price (FTP), theefficiency and price variances are posted to a work center or the calculationoffice (depending on the Posting Method Price/Efficiency Variances parameters.In this case, calculation variances are always posted to the calculation office.

For items with an actual valuation method, the variances are calculated, but arenot posted on work center or calculation office, but directly to warehousing oneffective cost components. If the items of this production order are still ininventory, these variances are posted to inventory, where a value adjustment isperformed. If the items are no longer in inventory, the calculated variances areposted as a value correction.

4 Production orders

Production orders


The following formulas are used to calculate the production results.

� Efficiency Variance = (Estimated Quantity � Actual Quantity) x EstimatedPrice

� Price Variance = (Estimated Price � Actual Price) x Actual Quantity

� Calculation Variance = Production Results � Price Variance � EfficiencyVariance

Standard/Estimatedquantity

Actualquantity

Standard/Estimated

price

Actualprice

Price variances

Efficiencyvariances

The actual prices in the previous formulas are read from the WIP and InventoryTransactions (PCS/SFC) (tcfin100) table. The estimated prices are determinedthrough functions from the ROU and CPR during the procedure, closeproduction order, or operation.

When WIP transfers are used, a difference can exist between the incoming WIPon a work center and the outgoing WIP on the WIP transfer cost component.This difference can only arise if unplanned rejects occur at that work center. Thedifference between the incoming and outgoing WIP on the WIP transfercomponents is included in the production results as efficiency variance.

Production orders


WIP transfersWIP transfers are performed to transfer the work in process value from one workcenter to another. This transfer is only carried out if production results by workcenter are wanted.

The amount of the WIP transfers is calculated together with the estimated enditem unit costs at the moment the estimated costs are frozen. As a result, WIPtransfers are based on the estimated order costs. First, operation sets must bedetermined. An operation set consists of a number of subsequent operationsexecuted in the same work center.

In the production planning, operations 10 through 60 are present. The first twoand the final two operations are executed in work center 1. Operation 30 and 40are executed in work center 2. In this example, three operation sets are present asshown in the following figure:

The WIP transfer amounts are always calculated by unit of end item. At themoment a quantity or the total operation is completed, as determined by the WIPTransfer Method parameter, the WIP transfer value is multiplied with thecompleted quantity and used on the WIP transfer postings to BaanERPFinancials. In the previous example, WIP transfers will take place from workcenter 1 to work center 2, from work center 2 to work center 1, and finally fromwork center 1 to the production order calculation office. For more information onthe financial transactions related to WIP transfers, refer to Chapter 5, �Financialtransactions.�

EXAMPLE

1020

3040

5060

Production orders


Example of production order costingfunctionality

Data for this exampleThis simple example illustrates base functionality in the Production OrderCosting (CST) module. The example does not include all exceptions.

The produced item contains two purchased materials. The following illustrationshows the BOM:

ITEM

PUR1 (2) PUR2 (1)

Each ITEM must have two pieces of PUR1 and one piece of PUR2. The firstcomponent has a cost price of HFL 10 (Dutch guilders) and valuation methodFTP. The second component has a cost price HFL 15 and valuation methodMAUC.

The routing of this item consists of three operations, each executed in a differentwork center.

10 20 30Cycle Time 1 hour 0.5 hour 1 hourLabor Costs/Hour HFL 50 HFL 10 HFL 25Machine Costs/Hour HFL 100Material PUR1 PUR2Work Center Work Center 1 Work Center 2 Work Center3

The calculated cost price (CPR) is HFL 165.Material:

2 HFL 10 = HFL 201 HFL 15 = HFL 15

HFL 35Operations:

1 HFL 50 = HFL 500.5 HFL 10 = HFL 50.5 HFL 100= HFL 501 HFL 25 = HFL 25

HFL 130HFL 165

Production orders


Parameter settingsThis example assumes that you want results by work center and WIP transfersare carried when an operation is completed. The costs of actual hours arecalculated using the estimated (operation) rates.

The estimated costs are frozen At Release. No cost components are tracked indetail; therefore, all costs will be aggregated to the three aggregated costcomponents. In this example, the cost components are assumed to be MAT,OPR, and SUR.

The WIP transfer cost component is WIP.

Back flushing is not used; therefore, you must manually perform material issuingand hours processing.

The efficiency and price variances are posted on work center level.

Generation of a production orderA production order is created for ITEM with an order quantity of five pieces.

When the production order is created, the estimated material costs and estimatedoperation costs are calculated.

In the Estimated and Actual Material Costs session, the estimated quantity andthe estimated cost price for each unit of the material appears. For this example,the results are the following:

Estimated Quantity Estimated Cost Price Cost ComponentPUR1 10 HFL 10 mat1PUR2 5 HFL 15 mat2

The operation costs appear in the Estimated and Actual Hours Costs session.

10 20 30Quantity Planned Input 5 5 5Quantity Planned Output 5 5 5Estimated Hours 5 hours 2.5 hours 5 hoursLabor Costs (costcomponent)

HFL 250(opr1)

HFL 25 (opr2) HFL 125(opr4)

Machine Costs (costcomponent)

HFL 250(opr3)

The estimated and actual material costs are stored for each unit, and the operationcosts are for the total production order.

NOTE

Production orders


Release of the production orderWhen the production order is released, the estimated costs are frozen (see theparameter settings for this example). At that moment, the end item unit costs andWIP transfers are calculated.

The end item unit costs are based on the estimated order costs. The End ItemUnit Costs session shows the cost for each unit of end item in work center basedview and in item based view, as shown in the following figure:

EstimatedQuantity

CostComponent

Estimated UnitCosts

Work Center BasedWork Center 1 2 mat1 HFL 20

1 opr1 HFL 50Work Center 2 0.5 opr2 HFL 5

0.5 opr3 HFL 50Work Center 3 1 mat2 HFL 15

1 opr4 HFL 25Item Based(Calculation Office)

3 MAT HFL 35

3 OPR HFL 130

The WIP transfers are calculated together with the end item unit costs. WIPtransfers are carried out between work centers if an operation is completed orpartially completed.

Production orders


The following table summarizes the results. To display the results, you can usethe WIP Transfers session.

CostComponent

Est. TransferQty.

TransferPrice/ Unit

Total TransferPrice

Work Center 1 ��Work Center 2

mat1 5 HFL 20 HFL 100

opr1 5 HFL 50 HFL 250Work Center 2 ��Work Center 3

WIP 5 HFL 70 HFL 350

opr2 5 HFL 5 HFL 25opr3 5 HFL 50 HFL 250

Work Center 3 ��Calculation Office


mat2 5 HFL 15 HFL 75opr4 5 HFL 25 HFL 125

The cost component in the previous table can be seen as the from-costcomponent in the WIP transfer (Issue) posting. For more information, refer to theexample financial transactions in Chapter 5, �Financial transactions.�

The estimated transfer quantity is based on the quantity planned output from anoperation, and not on the amount of hours or materials required. In this example,the estimated transfer quantity will be five on all operations.

Operation 10In operation 10, nothing unusual occurs.

First, the materials are issued, which result in a financial posting in the GeneralLedger (GLD) module in BaanERP Financials and TC FIN.

PUR1Cost Component mat 1Estimated Quantity 10Estimated Cost Price HFL 10Actual Quantity 10Actual Cost Price HFL 10

As a result, the total actual material costs for operation 10 are:10 * HFL 10 = HFL 100. This total actual material cost is posted in the GeneralLedger module in BaanERP Financials and TC FIN.

Production orders


In addition, hours are posted on Operation 10. Assume that 4.5 hours wereposted using the estimated operation rate.

Operation 10Estimated Hours 5 hoursEstimated Labor Costs HFL 250Actual Hours 4.5Actual Labor Costs HFL 225

These actual costs will also be posted to Baan ERP Financials and TC FIN.

After issuing material and posting hours, you can set the operation to Completed.At that moment, the WIP transfers are complete.

The reported quantity complete is five pieces. Therefore, the WIP transfers arecarried out for an actual transfer quantity of five. As a result, these WIP transfersare performed according to the estimates in the previous WIP transfer table.

Operation 20For operation 20, exactly 2.5 hours are posted against estimated rates, so theestimated costs are equal to the actual costs.

Operation 20Estimated Hours 2.5 hoursEstimated Labor Costs HFL 25Estimated Machine Costs HFL 250Actual Hours 2.5 hoursActual Labor Costs HFL 25Actual Machine Costs HFL 250

Something goes wrong in this operation, and only four pieces are reportedcompleted, while one piece is rejected.

Production orders


As a result, WIP transfers are only performed for four pieces.

CostComponent

Act. TransferQty.

TransferPrice/ Unit

Total TransferPrice

Work Center 2 ��Work Center 3


opr2 4 HFL 5 HFL 20opr3 4 HFL 50 HFL 200

Operation 30On operation 20, only four pieces are reported completed, therefore, the input ofoperation 30 is four pieces.

This operation issues the materials. PUR2 uses actual costing, with a valuationmethod of MAUC, and the actual cost price of this material is HFL 20. Only fourpieces are issued.

PUR2Cost Component mat 1Estimated Quantity 5Estimated Cost Price HFL 15Actual Quantity 4Actual Cost Price HFL 20

After material issuing, four hours are processed.

Operation 30Estimated Hours 5 hoursEstimated Labor Costs HFL 125Actual Hours 4Actual Labor Costs HFL 100

Production orders


Four pieces on operation 30 are reported completed, so the transfer quantity forWIP transfers is equal to four.

CostComponent

Est. TransferQty.

TransferPrice/ Unit

Total TransferPrice

Work Center 3 ��Calculation Office


mat2 4 HFL 15 HFL 60opr4 4 HFL 25 HFL 100

Completion of the production orderFour pieces are reported complete for this production order. As a result, thecompletion posting is based on a quantity of four. The amounts for thecompletion posting are based on the end item unit costs, although the amountsare stored in another entity type.

Therefore, on cost component MAT, a posting is made for the following:4 * HFL 35 = HFL 140.

On cost component OPR, a posting is made for 4 * HFL 130 = HFL 520.

The receipt posting from BaanERP Warehouse Management is based on thevaluation price in CPR. For more information, refer to the first section of thisexample.

In this example, the completion and receipt posting have the same amounts. Thiscan happen in several situations, but this does not have to be the case.

To close the production orderBefore calculating the production results, the estimated costs are updated if anupdate is required. This update is carried out by calculating the input for eachoperation based on the quantity completed using the following formula:

PlannedQuantity

Quantity Percentage Yield100Completed

factor correctionScrapQuantity +∗

=

This correction is performed to avoid misleading variances. For example, if 10pieces were ordered, but only eight pieces were completed, the estimated costsare for 10 pieces rather than for eight. This can lead to positive variances, but infact the production was worse than planned because of rejects. The correction iscarried out on operation level, so, the correct variances are calculated for eachwork center.

NOTE

Production orders


The following formulas are then used to calculate the production results:

� Price variance = (Estimated price � Actual price) x Actual quantity

� Efficiency variance = Estimated price x (Estimated quantity � Actualquantity)

� Calculation variance = Production results � Price variance � Efficiencyvariance

This formula is applied for this example.

Operation10

Operation20

Operation30

Quantity Completed 5 4 4Correction Factor 5/5 = 1 4/5 = 0.8 4/5 = 0.8

Estimated material quantity 10 5Estimated material cost price HFL 10 HFL 15Corrected estimated materialquantity

10 4

Actual material quantity 10 4Actual cost price HFL 10 HFL 20

Operation10

Operation20

Operation30

Estimated Hours 5 2.5 5Corrected Estimated Hours 5 2 4Estimated Labor Costs HFL 250 HFL 25 HFL 125Corrected Estimated Labor Costs HFL 250 HFL 20 HFL 100Estimated Machine Costs HFL 250Corrected Estimated Labor Costs HFL 200Actual Hours 4.5 2.5 4Actual Labor Costs HFL 225 HFL 25 HFL 100Actual Machine Costs HFL 250

Production orders


Variances operation 10

First, for the material PUR1, the estimated quantity and cost price are equal tothe actual quantity and cost price, so there is no variance on PUR1.

For the operation, a difference in quantity exists. This difference results in anefficiency variance:

(5 � 4.5) * HFL 50 = HFL 25, which is equal to the difference between thecorrected estimated labor costs and the actual labor costs.

Variances on operation 20

The estimates on this operation are corrected because an unplanned reject tookplace.

As a result, the efficiency variances are:

(2 � 2.5) * HFL 10 = -/- HFL 5

(2 � 2.5) * HFL 100 = -/- HFL 50

An efficiency variance also exists on WIP transfers in this case. To calculate theefficiency variance, you must subtract the incoming WIP amount from theoutgoing WIP amount on the WIP transfer cost component:

Work Center 2

Actual Costs HFL 25 (opr2) WIP out HFL 20 (opr2)

Actual Costs HFL 250 (opr3) WIP out HFL 200 (opr3)

Eff. Variance -/-HFL 5 (opr2)

Eff. Variance -/- HFL 50 (opr3)

WIP in HFL 350 (WIP) WIP out HFL 280 (WIP)

Eff. Variance-/- HFL 70 (WIP)

Production orders


Variances on operation 30

The estimates on this operation are also corrected. The quantity planned inputand quantity completed of this operation are four.

For the material, a price variance also exists in this case.

(HFL 15 -/- HFL 20) * 4 = -/- HFL 20

No variance exists on the operation costs.

Calculation office variances

In this example, no calculation office variances exist. Calculation officevariances can exist, for example, if order quantity is not equal to economic orderquantity or the cost price of the end item has changed.

The calculation variances contain all production results that are not included inprice and efficiency variances. This variance will clear the WIP. For each workcenter / cost component combination the WIP value is calculated by WIP =incoming costs + results � outgoing value.

Production orders



Overview financial transactionsOverview list financial transactions

Financial Transaction1 Issue2 Item Surcharge (Issue)3 Warehouse Surcharge (Issue)4 Operation Costs5 Subcontracting Costs6 WIP Transfer (Issue)7 WIP Transfer (Issue invoiced)8 WIP Transfer (Receipt)9 WIP Transfer (Receipt invoiced)10 Completion11 Item Surcharge (Receipt)12 Receipt13 Warehouse Surcharge (Receipt)14 Efficiency Variances15 Price Variances16 Add. Calculation Office Variances17 Value Correction

5 Financial transactions

Financial transactions


ExampleThis chapter illustrates an example of the financial transactions related to shopfloor orders. You can find the data for this example in the following section.

Purchased item

The purchased item is valued against Fixed Transfer Price (FTP) in warehouseWH 1.

The three aggregated cost components are MAT, OPR, and SUR for material,operation, and surcharge costs. No detailed cost components are specified.

EUR Cost ComponentPurchase Price 250 MATItem Issue Surcharge 3 IISItem Receipt Surcharge 10 IRSWarehouse Issue Surcharge 2 WISWarehouse Receipt Surcharge 25 WRSFTP Receipt Price 250 MAT

35 SURFTP Issue price 250 MAT

40 SUR



Manufactured item

The manufactured item in this example uses one piece of the previous purchaseditem.

The routing contains two operations on two different work centers. In addition,receipt surcharges are defined for this item. The end item is valued against FTPin warehouse WH 2.

EUR Cost ComponentOperation 10, WC 1 1000 OP1Operation 20, WC 2 600 OP2

200 OP3Item Receipt Surcharge 50 IRSWarehouse Receipt Surcharge 30 WRS

FTP Receipt Price 250 MAT1800 OPR120 SUR

The production orders created for this item use calculation office SFC1. The WIPtransfer cost component TRF is used in the examples.

In this example, exceptions are also provided to illustrate some other aspectssuch as actual costs and subcontracting.

Details on financial transactionsGeneralYou can create production orders with the Production Orders (tisfc0501m000)session. For each posting, information is provided that briefly describes whenand by which packages the posting is carried out.

You can find the parameters mentioned in this example in the Shop FloorControl Parameters (tisfc0500m000) session on the Costing tab, and you canfind descriptions for the parameters in Chapter 2, �Production order costingparameters.�

NOTE



Production issue

The issue postings are created at the moment a material is issued from awarehouse. This can be done using the Initiate Inventory Issue (ticst1501m000)session. If you select the Direct Process WH Order Lines check box, thewarehousing procedures are automatically performed when you initiate inventoryissue. Otherwise, the user must perform the warehousing procedures manually inBaanERP Warehouse Management. BaanERP Warehouse Management posts theissue transaction at the moment the outbound line is shipped, or when thematerial is received, in the case of a negative issue.

You can also skip the manual actions and use backflushing to initiate inventoryand receive the inventory on the shop floor.

The amount will contain the actual material costs, which depends on thevaluation method, including the issue surcharges.

If the Results by Work Center costing paramter is Yes, the issue posting isperformed to the work center of the operation for which the material is issued.Otherwise, the posting is carried out to the calculation office of the productionorder.

Production Item Surcharge (Issue)

If an item is issued to the shop floor, BaanERP Warehouse Management createsthe item surcharge (issue) posting, together with the Issue posting. This postingmust not be included when you calculate the WIP value or actual costs for theproduction order, because the amount is also included in the Issue posting. Formore information, refer to Chapter 2, �Production order costing parameters.� Theamount of the issue surcharge is retrieved from CPR based on the surchargecalculation method.

Production Warehouse Surcharge (Issue)

When an item is issued to the shop floor, BaanERP Warehouse Managementcreates the warehouse surcharge (issue) posting, together with the Issue posting.This posting must not be included when the user calculates the WIP value oractual costs for the production order, because the amount is also included in theIssue posting. For more information, refer to Chaper 2, �Production order costingparameters.� The amount of the issue surcharge is retrieved from CPR based onthe surcharge calculation method.



The following table provides an example of material issue postings:

Number JournalEntry

TransactionOrigin

FinancialTransaction

EU CostComponent

Amount

1 D Inventory Production Item Surcharge(Issue)

WH 1 SUR 2

C SurchargeCover

Production Item Surcharge(Issue)

WH 1 IIS 2

2 D Inventory Production WarehouseSurcharge(Issue)

WH 1 SUR 3

C SurchargeCover

Production WarehouseSurcharge(Issue)

WH 1 WIS 3

3 D WIP (SFC) Production Issue WC1/SFC1* MAT 250

C Inventory Production Issue WH 1 MAT 250

4 D WIP (SFC) Production Issue WC1/SFC1* SUR 40

C Inventory Production Issue WH 1 SUR 40

* Posting to work center when Results by Work Center is Yes, posting tocalculation office when Results by Work Center is No.

The surcharge component contains 40 EUR in this example as opposed to the 5EUR posted through the item and warehouse issue surcharge. The remaining 35EUR were already posted at the moment the material was received in thewarehouse, for example, through a purchase order.

Production Operation Costs

The BaanERP Manufacturing Hours Accounting (HRA) module posts theoperation costs at the moment hours are processed. This posting can beperformed manually. In this case, hours are entered in the Hours Accounting byEmployee (tihra1501m000) session. After you insert the hours, the hours can beprocessed with the Process Hours Accounting (tihra1210m000) session.

Another method to create and process hours transactions is to use backflushing.

The debit (to) side of the posting contains the calculation office if the user doesnot want to see results by work center. Otherwise, the (planned) work center ofthe operation is taken.

If labor or machine costs are posted, the credit (from) side will always containthe actual work center entered in hours accounting.



For overhead costs, this is parameter dependent. If this parameter is selected, theoverhead costs are posted on employee work center. Otherwise, the actualentered work center is used.

The Actual Operation Rates parameter determines the rate used to calculate theactual hours costs. If this parameter is set to Estimated Rates, the rates areretrieved from the Operation Rates (ticpr1550m000) session for the operationrate code linked to the work center on which the hours are posted. If the actualman and machine rates are used, the rates and cost components are retrievedfrom the Employees (tccom0101s000) session and/or the Machines(tirou0102m000) session.

The overhead costs are always retrieved from the operation rates in CPR, even ifthe actual man and machine rates are used.

In addition, in the Hourly Labor Types (tihra1130m000) session, you can specifysurcharges.

Example 1The hours are entered on work center WC3. The estimated rates are used and arethe same as the estimated rates of work center WC1 and WC2.

Number Journal Entry TransactionOrigin


EU CostComponent

Amount

1 D WIP(SFC) Production Operation Costs WC1/SFC1* OP1 1000

C Labor/MachineCost Cover

Production Operation Costs WC3 OP1 1000

2 D WIP(SFC) Production Operation Costs WC2/SFC1* OP2 600

C Labor/MachineCover

Production Operation Costs WC3 OP2 600

*If Results by Work Center is set to Yes, the posting is performed on workcenter WC1. Otherwise, the costs are posted to the calculation office of theproduction order.



Example 2In addition, overhead costs on the first operation are present in this example.Assume the overhead rate is 50 EUR/hour on cost component OH. The employeeis linked to work center EMP.

If the Cover Overhead Costs in Employee Work Center parameter is set toYes, the following posting is created:



EU CostComponent

Amount

3 D WIP(SFC) Production OperationCosts

WC1/SFC1* OHC 50

C OverheadCost Cover

Production OperationCosts

EMP OHC 50

If the Cover Overhead Costs in Employee Work Center parameter is No, theposting contains the actual work center:



EU CostComponent

Amount

4 D WIP(SFC) Production OperationCosts

WC1/SFC1* OHC 50

C OverheadCost Cover

Production OperationCosts

WC3 OHC 50

* If Results by Work Center parameter is set Yes, the posting is performed onwork center WC1. Otherwise, the costs are posted to the calculation office of theproduction order.

Production Subcontracting Costs

When subcontracting is performed, a purchase order is generated frommanufacturing. The subcontracted item will not be received physically in awarehouse, but the financial transaction is created by BaanERP WarehouseManagement.

At the moment the receipt of the purchase order is confirmed, the financialtransaction is posted. The cost component is the cost component of the purchaseorder, and the amount is the amount of the purchase order. No surcharges aretaken into account for subcontracting items. The amount is determined when yougenerate the purchase order from manufacturing by using the estimated hoursand specified subcontracting rate. Using the Subcontracting Rates(ticpr1560m000) session, the user can specify subcontracting rates for asubcontracting item by price calculation code, business partner, and task.Subcontracting operations are carried out in a subcontracting work center.



In addition to this standard booking, BaanERP Finance can possibly be creating afinancial transaction for subcontracting. This is the case when the order amountdiffers from the amount that must be paid. Usually, these types of differences arelogged as Purchase/Price Variance, however, for subcontracting, these costs areposted to the production order.

Assume the cost component is SUB with amount 100 EUR.



EU CostComponent

Amount

5 D WIP(SFC) Production Subcontracting WCS/SFC1* SUB 100

C Invoice Accrual Production Subcontracting PUR1 SUB 100

* If the Results by Work Center parameter is set to Yes, the posting is carriedout on work center WCS. Otherwise, the costs are posted to the calculation officeof the production order.

Production WIP Transfer (Issue)

WIP transfers are only created if the Results by Work Center parameter is set toYes. By means of a WIP transfer, the work in process value is transferred fromone work center to the next. BaanERP Manufacturing creates the posting at themoment an operation is completed, that is, when WIP Transfer Method = Only atCompletion, or when quantities are reported on an operation, WIP TransferMethod = Always.

Production WIP Transfer (Issue Invoiced)

The transaction WIP Transfer (Issue Invoiced) is performed in the same situationas WIP Transfer (Issue), but only if the work centers belong to a differentfinancial company and an invoice relation is specified between the work centersfor which the WIP transfer is created. In this case, a warehousing transfer order iscreated in this case to handle the WIP transfer.

Production WIP Transfer (Receipt)

WIP transfers are only created if the Results by Work Center costing parameteris set to Yes. By means of a WIP transfer, the work in process value istransferred from one work center to the next. BaanERP Manufacturing createsthe posting at the moment an operation is completed, in other words, when WIPTransfer Method = Only at Completion, or quantities are reported on anoperation, WIP Transfer Method = Always.



Production WIP Transfer (Receipt Invoiced)

The transaction WIP Transfer (Receipt Invoiced) is carried out in the samesituation as WIP Transfer (Receipt), but only when the work centers belong todifferent financial companies and an invoice relation is specified between thework centers for which the WIP transfer is created. In this case, a warehousingtransfer order is created to handle the WIP transfer.

After completion of the first operation, the following financial transactions arecreated.


Financial Transaction EU CostComponent

Amount

1 WIP in Transit Production WIP Transfer (Issue) WC 1 TRF 250

WIP (SFC) Production WIP Transfer (Issue) WC 1 MAT 250


WIP (SFC) Production WIP Transfer (Issue) WC 1 SUR 40


WIP (SFC) Production WIP Transfer (Issue) WC 1 OP1 1000

4 WIP (SFC) Production WIP Transfer (Receipt) WC 2 TRF 1290

WIP in Transit Production WIP Transfer (Receipt) WC 1 TRF 1290

In this example, the second operation is the last one. This WIP transfer will takeplace from work center 2 to the production order calculation office. The postingsare shown in the following table.


Financial Transaction EU CostComponent

Amount


WIP (SFC) Production WIP Transfer (Issue) WC 2 TRF 1290

6. WIP in Transit Production WIP Transfer (Issue) WC 2 TRF 600


7. WIP in Transit Production WIP Transfer (Issue) WC 2 TRF 200


8. WIP (SFC) Production WIP Transfer (Receipt) SFC1 TRF 2090

WIP in Transit Production WIP Transfer (Receipt) WC 2 TRF 2090

EXAMPLE



Production Completion

BaanERP Manufacturing posts the Completion transactions at the moment theproduction order is completed. This transaction is required to restructure the costcomponent on the production WIP account to the effective cost components. Thisrestructuring isrequired because the receipt posting is also performed on effectivecost components.

Production WIP (calc. off.)

WIP tr. (receipt) TRF 2090

Item sur. (receipt) IRS 50

MAT 250 TRF 250Completion OPR 1800 TRF 1800

SUR 40 TRF 40SUR 50 IRS 50

` Inventory

MAT 250 Receipt MAT 250

OPR 1800 OPR 1800

SUR 90 SUR 90

The amounts used during completion are calculated when the estimated end itemunit costs are calculated at the moment the costs are frozen. If you want resultsby work center, the from (credit) side will contain the WIP transfer costcomponent. If costs are posted to the calculation office, the from (debit) side willcontain the detailed cost components. The to side will always be against effectivecost components.

Production Item Surcharge (Receipt)

These are the end item receipt surcharges. These surcharges are logged by theShop Floor Control module at the moment the production order is completed andcorrected at production order closing when necessary. This can be the case if thesurcharges are based on the total or selective costs. If these costs change aftercompletion, the surcharges must be corrected.



Example



EU CostComponent

Amount

6 D WIP (SFC) Production Completion SFC1 MAT 250

C WIP (SFC) Production Completion SFC1 TRF 250

7 D WIP (SFC) Production Completion SFC1 OPR 1600


8 D WIP (SFC) Production Completion SFC1 SUR 40


9 D WIP (SFC) Production Completion SFC1 SUR 50

C WIP (SFC) Production Completion SFC1 IRS 50

10 D WIP (SFC) Production Item Surcharge(Receipt)

SFC1 IRS 50

C SurchargeCover

Production Item Surcharge(Receipt)

SFC1 IRS 50

Production Receipt

The item is received against valuation receipt price in the warehouse. When thewarehouse receives the end items, BaanERP Warehouse Management posts thistransaction.

Production Warehouse Surcharge (Receipt)

The warehouse receipt surcharges are not considered as production order WIPbecause the receipt charges are carried out after the item left the shop floor and isreceived in the warehouse.



Example



EU CostComponent

Amount

1 D Inventory Production Receipt WH 1 MAT 250

C WIP (SFC) Production Receipt SFC1 MAT 250

2 D Inventory Production Receipt WH 1 OPR 1800

C WIP (SFC) Production Receipt SFC1 OPR 1800

3 D Inventory Production Receipt WH 1 SUR 90

C WIP (SFC) Production Receipt SFC1 SUR 90

4 D Inventory Production WarehouseSurcharge (Receipt)

WH 1 SUR 30

C SurchargeCover

Production WarehouseSurcharge (Receipt)

SFC1 WRS 30

Production Efficiency Variances

The way in which efficiency and price variances are posted depends on thevaluation method and the parameter settings, as described in Chapter 1,�Introduction.� There is also a slight difference for customized items.

For end items valued against an actual costing method, the from (credit) side ofthe posting is always performed to the warehouse, for both customized and non-customized items.

For an FTP valued customized end item, this posting is performed to the projectcalculation office of the PCS project.

For the FTP valued non-customized end items, the costing parameters areimportant. With Not Applicable, the end items are not calculated and posted asadditional calculation office variance. If the parameter is set to On ProductionOrder, the from (credit) side is posted to the calculation office. If the parameteris set to On Work Center, the variances are posted to the work center. The to(debit) side of this posting will contain the work center where the variances werecaused. If you do not want results by work center, the will always be thecalculation office.

Efficiency variances are calculated using the following formula:

� Efficiency variance = (estimated quantity -/- actual quantity) * estimatedprice.

The variances are always calculated by work center/cost componentcombination.



Production Price Variances

The production price variances are comparable to the efficiency variances. Forprice variances the following formula is used:

� Price variance = (estimated price -/- actual price) * actual quantity.

Production Additional Calculation Office Variances

The additional calculation office variance, sometimes shortened as calculationvariance, will clear the WIP after the price and efficiency variances arecalculated. This variance can have several reasons. For example, the postingmethod for price and/or efficiency variances might be set to Not Applicable, orthe order quantity might not equal the economic order quantity.

The from (credit) side of this posting is carried out to the production ordercalculation office (anonymous FTP valued end item), the warehouse (end itemwith actual costing method), or the PCS calculation office (FTP valuedcustomized end item). The to (debit) side is posted to the work center for whichthe variance was calculated.

The efficiency variance of the first posting is carried out to calculation officebecause efficiency variances must be posted on production order level accordingto the parameter settings. The price variance is posted to the work center.

Number JournalEntry

TransactionOrigin


EU CostComponent

Amount

1 D WIP Production Efficiency Variance SFC1

C EfficiencyVariance

Production Efficiency Variance WC 1

2 D WIP Production Price Variance WC 2

C PriceVariance

Production Price Variance WC 2

3 D WIP Production AdditionalCalculation OfficeVariance

SFC1

C CalculationVariance

Production AdditionalCalculation OfficeVariance

SFC1

EXAMPLE



Production Value Correction

This posting is required in a specific situation. If negative inventory is allowed,the products can already be sold and shipped before the products are received inthe warehouse. This can be the case, for example, when the products are alreadyphysically in the warehouse before the confirm receipt is carried outin thesystem. If no receipts were performed yet, the items will be shipped against theknown FTP price. If the FTP is changed after the goods are shipped and theconfirm receipt is carried out for the manufactured items, the inventory accountmust be corrected as shown in the following T-accounts.

For a production order, the value correction is required in case the FTP pricechanged between the delivery of sold goods and the receipt of manufacturedgoods when negative inventory occurred.

An item was sold and issued from inventory for 8 EUR, on cost componentMAT, before inventory was present.

After this transaction, the receipt of the production order was confirmed for FTPprice 10 EUR. To be able to correct the inventory value, you must use thetransaction Production/Value Correction.

Production WIP Inventory Sales Deliveries

10 Production/ Receipt 10 8 Sales/ Issue 8

-2

Production / Value Correction

Inventory Value Correction

-2



EU CostComponent

Amount

D Inventory Production Value Correction WH 1 MAT -2

C InventoryValue Correction

Production Value Correction WH 1 MAT -2

For customized items, the credit side of the Value Correction posting is carriedout to the calculation office of the PCS project.

EXAMPLE


Work in processThe production order WIP shows all relevant financial transactions, which arethe following:

� Incoming amounts,� Outgoing amounts.� Results.

The following rule is used in the determination of the WIP value:

� WIP = incoming costs + results � outgoing value.

The production order WIP shows the WIP on the calculation office and workcenters.

The Result by Work Center parameter and the valuation method of themanufactured end item both influence the WIP. To determine the WIP, you canuse the financial transactions from the WIP and Inventory Transactions(PCS/SFC) (tcfin100) table. The WIP is also slightly different for customizeditems.

The results are shown as result, in case the valuation method of the manufactureditem is equal to FTP. For actual costing, the variances are outgoing (multipliedby �1).

6 Work in process

Work in process


The following tables show the situation when you want results by work center.

Production WIPWork CentersIncoming Result OutgoingIssue Calculation variance1 Calculation variance2 (* -1)Operation Costs Price variance1 Price variance2 (* -1)Subcontracting Efficiency variance1 Efficiency variance2 (* -1)WIP Transfer (Receipt) WIP Transfer (Issue)WIP transfer (ReceiptInvoiced)

WIP transfer (IssueInvoiced)

Production WIPSFC Calculation OfficeIncoming Result OutgoingWIP transfer (Receipt) ReceiptWIP transfer (Receiptinvoiced)Completion (To side) Completion (From side)Item Surcharge (Receipt) Efficiency variance Efficiency variance (*-1)

Price variance Price variance (* -1)Calculation variance3 Calculation variance (*-1)4

WIP transfers are only applicable if you want results by work center. The WIPtransfer issue postings are considered as outgoing for a work center. The WIPtransfer receipt postings are incoming WIP. The last WIP transfer is performedfrom the last work center in the production planning to the production ordercalculation office.

1 These variances are only posted as results when the end item is valued againstFTP or in case the end item is customized and the production order is linked to aPCS project.2 These variances are posted as outgoing when the item is valued against LIFO,FIFO, MAUC, or Lot costing.3 These variances are only posted as results when the end item is valued againstFTP or in case the end item is customized and the production order is linked to aPCS project.4 These variances are posted as outgoing when the item is valued against LIFO,FIFO, MAUC, or Lot costing.

Work in process


The item receipt surcharge posting is considered as incoming WIP. Thewarehouse surcharge receipt is posted to the warehouse and is not part of theproduction order WIP.

The completion posting has an incoming and an outgoing side. The from side ofthe completion posting contains the WIP transfer cost component and thedetailed item surcharge receipt cost component. This is considered as outgoingWIP. The incoming counterparts are the WIP transfers received on theproduction order calculation office and the item surcharge postings.

The to side of the completion posting is carried out on the effective costcomponents. This is considered as incoming WIP on the calculation office. Thisis simply a cost component change, and the amounts remain the same asexplained at the description of the completion posting in Chapter 5, �Financialtransactions.�

Work in process


Documents

Technical Notes for Production Order Costingbaansupport.com/docs/baan/Production order costing.pdf · 6 Work in process 6-1 ... functionality during the flow of a production order