Cost calculations on Capacity planning

Introduction:

In my previous blog, I have showcased how capacity planning will help us understand the capacity load, allocated load on work centres and plan or re-plan the production orders.

If you have missed my blog please click on this link.

This blog talk about the cost calculation of direct cost and overhead cost on capacity ledger entries.

There are two places where we add the cost. I will go through both the methods and you can choose which is best for your business.

1. Work Centre
2. Routing

Work Centre –

• Unit Cost is added on the Work centre card.
• Unit cost= Direct Unit Cost (Labour rate)+ (Direct Unit Cost x Indirect Cost %) + Overhead Rate.
• Disable Specific Unit Cost -This indicates the system to use the cost of the work centre rather than the one mentioned on the routing.

I have added cost to the routing as 15 but as Specific Unit Cost is disabled, this would be ignored for the calculation.

Posting the production journal for 10 units. Enter the setup time and Run time manually.

The Cost calculation for capacity ledger entry is as following:

Direct Cost = Run Time * Direct Cost (work Centre) i.e. 60 * 10 = 600

Overhead Cost = Run Time * Overhead Cost (work centre) i.e. 60 * 1 =60

Routing

1. Enable Specific Unit Cost on the work centre
2. Add Unit cost per on the routing lines.

The Cost calculation for capacity ledger entry is as following:

Direct Cost = Run Time * (Unit cost per -1) i.e. 60 * (15-1) = 840

Overhead Cost = Run Time * Overhead Cost (work centre) i.e. 60 * 1=60

Thanks for reading!