Cost Calculation for Produced Items: To Process Production Orders with the Standard Costing Method

The following activity will walk you through the processing of a production order with the Standard costing method.

Story

Suppose that GoodFood One Restaurant has ordered three juicers from the SweetLife Fruits & Jams company. The production process includes the assembly of the juicers. Further suppose that the system uses the standard cost for calculating the unit cost of the produced juicers because the costs of juicer production do not fluctuate. For items with the standard cost, the system uses the Standard costing method for calculating the costs of production orders.

Acting as a production manager, you will create a production order for producing three juicers and process all related transactions. In a production environment, a shop-floor employee would create labor and move transactions on their own. To streamline this activity, you will enter this transaction as a production manager.

Also, acting as a production accountant, you will review the costs applied to the production order and the unit cost of the produced items on inventory receipts.

Configuration Overview

In the U100 dataset, the following tasks have been performed for the purposes of this activity:

  • On the Warehouses (IN204000) form, the WORKHOUSE warehouse has been defined, and its locations include MGI and MTL.
  • On the Stock Items (IN202500) form, the CFJFRTSCR, PULPCONT1L, JUICECUP05L, MRBASE, FNSIEVE, and GRDISC01 stock items have been defined.

Process Overview

In this activity, to process the documents and transactions related to the production of the juicers, you will do the following:

  1. On the Stock Items (IN202500) form, change the cost settings of the item to be produced.
  2. On the Production Order Maintenance (AM201500) form, create and release the production order.
  3. On the Materials (AM300000) form, issue the materials required for the assembly operation.
  4. On the Labor (AM301000) form, record the produced quantity and the labor spent on the juicer assembly.
  5. On the Production Order Maintenance form, review the production order balance after you have completed the order.
  6. On the Close Production Orders (AM506000) form, close the production order.

System Preparation

Do the following:

  1. As a prerequisite to the current activity, complete Configuration of Scrap, Waste, and By-Products in Production: Implementation Activity so that the system is ready for processing the production of juicers.
  2. Launch the MYOB Acumatica website, and sign in to the company in which the prerequisite activities have been performed. You should sign in as the production manager by using the peters username and the 123 password.
  3. In the info area, in the upper-right corner of the top pane of the MYOB Acumatica screen, make sure that the business date in your system is set to today’s date. For simplicity, in this activity, you will create and process all documents in the system on this business date.

Step 1: Updating the Item Cost

For the purposes of this activity, you will change the valuation method for the CFJFRTSCR item. Do the following;

  1. On the Stock Items (IN202500) form, select the CFJFRTSCR item.
  2. In the Valuation Method box of the General tab (Item Defaults section), select Standard.
  3. In the Pending Cost box of the Price/Cost tab (Standard Cost), type 482.
  4. In the Pending Cost Date box, select today's date.
  5. On the More menu (under Other), select Update Cost. Make sure that the system has copied the pending cost to the Current Cost box of the Standard Cost section on the Price/Cost tab.
    Tip: You open the More menu by clicking the More button (…) on the form toolbar.
  6. On the form toolbar, click Save.

Step 2: Creating the Production Order

To create the production order for three juicers, do the following:

  1. On the Production Order Maintenance (AM201500) form, add a new record.
  2. In the Summary area, specify the following settings:
    • Order Type: RO
    • Inventory ID: CFJFRTSCR
    • Warehouse: WORKHOUSE (inserted automatically)
    • Location: MGI (inserted automatically)
    • Order Date: Today's date (inserted automatically)
    • Description: Production of 3 juicers
  3. On the General tab, do the following:
    1. In the Qty. to Produce box, specify 3.
    2. In the Costing Method box, make sure that Standard is specified and is unavailable.
  4. On the form toolbar, click Save.
  5. On the More menu (under Processing), click Release Order. The order's status is changed to Released.
  6. On the Totals tab, make sure that 482.39 is specified in the Unit Cost box of the Planned section.

Step 3: Issuing Materials for the Operation

In this step, you will issue the materials for the assembly operation of the production order. Do the following:

  1. While you are still viewing the production order on the Production Order Maintenance (AM201500) form, on the More menu (under Transactions), click Release Materials. The system opens the Material Wizard (AM300020) form with the list of materials needed for the assembly operation.
  2. On the form toolbar, click Select All. The system creates the material transaction and opens it on the Materials (AM300000) form.
  3. In the Summary area, do the following:
    1. In the Description box, specify Materials for the assembly operation.
    2. Clear the Hold check box. The system changes the transaction's status to Balanced.
  4. On the form toolbar, click Release. The system releases the material transaction and changes the status of the transaction to Released.

Step 4: Recording the Labor and Produced Items for the Operation

Suppose that Carlos Cruz, a worker in the assembly work center, spent 30 minutes setting up the working environment for juicer assembly and assembled three juicers for one hour. To record the time that he spent on juicer assembly and the assembled quantity of juicers, do the following:

  1. On the Production Order Maintenance (AM201500) form, open the production order that you created earlier in this activity.
  2. On the More menu (under Transactions), click Create Labor Transaction. The system creates the labor transaction for the 0010 operation and opens it on the Labor (AM301000) form.
  3. In the only row, specify the following settings:
    • Employee ID: EP00000027 (Carlos Cruz)
    • Shift: 0001
    • Labor Time: 01:30
    • Quantity: 3
  4. In the Summary area, do the following:
    1. In the Date box, make sure that the today's date is specified.
    2. In the Description box, specify Recording the completed quantity and the time for juicer assembly.
    3. Clear the Hold check box. The system changes the transaction's status to Balanced.
  5. On the form toolbar, click Release. The system creates and releases the cost transaction to record the labor costs; it also releases the labor transaction.
  6. On the Receipts (IN301000) form, open the receipt with today's date, a total quantity of three CFJFRTSCR items, and a total cost of 1446.00.
  7. In the Unit Cost column of the only row, make sure that 482.00 is specified, which is the standard cost of the item.

Step 5: Reviewing the Production Order Balance

In this step, acting as a production accountant, you will review the production order balance after you have recorded the completion of the assembly operation. Do the following on the Production Order Maintenance (AM201500) form:

  1. Open the production order that you created earlier in this activity.
  2. On the Totals tab, review the production order balance as follows (see the screenshot below):
    1. In the Actual section, make sure that the following values are displayed:
      • Labor Time: 1 h 30 m
      • Labor: 30.00
      • Material: 1392.51
      • Tool: 0.66
      • Fixed Overhead: 15.00
      • Variable Overhead: 9.00
      • WIP Total: 1447.17 (which is the sum of the actual costs applied to the production order)
      • MFG to Inventory: 1446.00 (which is the cost of the completed items that were moved to stock)
    2. In the Variance section, make sure that the value of the total variance is 0.00, which means that the actual costs equal the planned costs of the production order.
    3. Make sure that the value of the WIP Balance box is 1.17, which is the difference between the values of the WIP Total and MFG to Inventory boxes. This difference appeared because the system calculated the item cost in an inventory receipt by using the standard cost of the item but not the sum of actual costs, which were applied to the production order.
    Figure 1. Production order balance for the assembly operation


Step 6: Closing the Production Order

In this step, you will close the production order and review the resulting GL transactions. Do the following:

  1. While you are still viewing the production order on the Production Order Maintenance (AM201500) form, on the More menu (under Processing), click Close Order. The system opens the Close Production Orders (AM506000) form with a row for the production order added.
  2. In the unlabeled column of this row, make sure that the Included check box is selected.
  3. On the form toolbar, click Process. In the Processing dialog box, which opens, view the processing details, and when the processing is completed, click Close.
  4. On the Production Order Maintenance form, make sure that the status of the production order has been changed to Closed.
  5. On the Journal Transactions (GL301000) form, open the transaction with the WIP Variance description and a control total of 1.17. As you can see, to clear the balance of the Work in Progress for Manufacturing GL account, the system credited this account and debited the COGS - WIP Inventory Variance GL account, which is dedicated for storing cost variances in production orders.

You have successfully created the production order for the assembly and packing of three juicers, processed all the transactions related to the production, and reviewed the costs of the production order.