costing sheet, standard cost and Direct, Indirect and overhead for calculation of FG cost.

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Posted on by Shivraj

HI ALl,

I am implementation project in free trade zone Thailand. Here to get benefits of free trade zone legal entity need to Purchase local parts 40%. As per process they have direct material, indirect material and overhead to calculate finished good cost.

I am suggesting to go for moving average or weighted average cost but finance team is suggesting to use standard cost.

My question is how come I calculate finished good cost if we use standard cost for all the Items including finished good. Can I create costing sheet for standard cost Item and calculate price of finished good from direct material, Indirect and overhead if we define standard cost for all the Items of company ?

I never used standard cost before in discrete manufacturing so I am confused.

Thanks in advanced.

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Weaveriski on at

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RE: costing sheet, standard cost and Direct, Indirect and overhead for calculation of FG cost.

Yes your calculation of the standard cost would be the same elements, you need to roll it up, you need to consider the price settings on the released product and how these are interpretted or you can configure the costing sheet to handle your indirects. It is basically the same as non-standard, but you need to run the calculation to establish the fixed cost for the period. The question should be why they want to adopt standard costing and the benefits they get from the approach.
Shivraj on at

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RE: costing sheet, standard cost and Direct, Indirect and overhead for calculation of FG cost.

Hi,

Thanks for your reply, I have got below answer.

Even if we are using standard cost for all the Items still we can use costing sheet setup and add direct, Indirect material cost group and overhead in costing sheet setup. I am still not sure why they are going for Standard cost as they are into automotive industry. I am new to standard costing so I am also not sure.

Thank you so much
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Weaveriski on at

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RE: costing sheet, standard cost and Direct, Indirect and overhead for calculation of FG cost.

Yes you can still add those elements in, make sure they are making the right decision!
Shivraj on at

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RE: costing sheet, standard cost and Direct, Indirect and overhead for calculation of FG cost.

Thanks Steven,

May I know your recommendation of Item model group for automotive truck industry.
Weaveriski on at

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RE: costing sheet, standard cost and Direct, Indirect and overhead for calculation of FG cost.

Its unique to each business, even an industry like automotive may have shifting trends within the sub-sectors.

Standard costing requires an understanding of the costing elements, hopefully in a non-volatile market, and then everything after that is variance, the variances are analysed and then reactions are made to the variations to try and correct any cost inefficiencies, or increase cost efficiencies. This needs finance to be undertaking cost management, and although this method is arguably simpler you have to to analyse the variances to make it worthwhile, you also have to understand the costs initially to set a realistic benchmark to also base your profit/sales pricing upon.

A costing method like FIFO gives you a more accurate cost per unit if you track by unit, you could argue the same for Average but this is smoother across multiple runs because the many components are averaged out.

Ultimately it comes down to the needs of each company, how they want to manage and report upon these elements. There is no real "wrong" answer which is why systems like AX allow different approaches, even by item in the case of AX (So finished goods could be standard whilst raw material is FIFO costed etc.)
RollingStonzcrm on at

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RE: costing sheet, standard cost and Direct, Indirect and overhead for calculation of FG cost.

Hi Steven, we are in the process of rolling out the D365 Ops and the firm is relatively new (startup) and they don't have any defined business process yet. They are looking for D365 to help them setup the process. To make it simple (relatively), I am thinking to go with STD costing model with operations scheduling (production perspective). At a high level, it would be great to know what to consider when it comes to setting up base line for production module (assuming I have the procurement, financials etc., taken care of). PDM system is currently used for BoM design etc., I know this is very generic but it would greatly help to form a framework by which to approach the production implementation.
RollingStonzcrm on at

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RE: costing sheet, standard cost and Direct, Indirect and overhead for calculation of FG cost.

just a note on my comment about operations - I meant to use routes .
Weaveriski on at

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RE: costing sheet, standard cost and Direct, Indirect and overhead for calculation of FG cost.

Hi

I would say you should not let the software dictate the process, you need to define the process you want and overlay the software, whilst you may not have any letting the software define it will lead to processing issues later.

As for the production module I would ignore MES and concentrate on the structures and routes. So how you build it (BOM/Formula) and then the process to make it. For this you need resources. I would not finite schedule, I would light touch put it in through the processing of works orders. You dont need production groups or pools (post by item group).

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