Production costing by Weight of finished good

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Posted on by austinwillard

We calculate our manufacturing costs as a function of the weight of the item produced(heavier products cost more to produce than lighter ones) there seems to be no option in BC to have the work centers post costing based on both the qty of the item produced and the weight of the item.

the best i could find would be setting the work centers to be Time based, and setting up individual routings unique to each finished item weight, and setting the run time of the route to be the weight of the item, but 1 this dramatically increases the number of routes I need and 2 completely invalidates the 'starting time' that gets calculated on the production order.

The ideal option would be to have a non-inventory item with a functioning cost associated with it as we did in our prior system, but BC doesn't allow for this either.

any ideas?

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austinwillard 20 on at

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RE: Production costing by Weight of finished good

Yes, we are attempting to distribute overhead costs as a function of the weight of item produced.

My issue is very similar to another user's

community.dynamics.com/.../production-order-with-non-inventory-item-consumption

its surprising to me that there aren't more manufactures that apply costs to a product based on an item characteristic like weight. Again the calculation that the system would use for a time based work center, output qty * run time on route * cost of work center would work for costing, but would eliminate the potential for being able to plan in the system.

the manual answer is simply to look up the weight of the item i'm producing, multiply that by the quantity and use the resulting number as my output for my cost work centers. (we split out overhead into 3 categories and thus 3 workcenters: Overhead, Labor, Manufacturing costs). only one of which needs to be on a per unit by weight calculation.

i'm not overly familiar with the output journal as i've been doing the majority of my posting through the production journal, do you have an idea of what the field you're referring to might be named? i can investigate further.

Thank you,
Robert Jolliffe 859 on at

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RE: Production costing by Weight of finished good

Thanks for that explanation,

What you are trying to do (if I understand) is allocate overheads by weight rather than by unit or by hour.

I am 99% sure that on a production order in the sub ledger when you post output there is a split of how the overhead rate (indirect costs) are allocated. I think that can be intercepted in programming and changed before it starts to post. The best way to tell if that would work is to try and manually manipulate those rates in the Output Journal before you post. Can you override the capacity costs - if so that's how you'd do this. It would address the problems you outline above.

I might have someone here look into it because it's an interesting idea.

Thanks!
austinwillard 20 on at

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RE: Production costing by Weight of finished good

we have actually already investigated using a standard inventory item for these costs, what seems like it should be the easiest method. Due to Business Central not allowing consumption to reduce an inventory below 0, we would have to add inventory of this item, then revaluate it every month, which actually we found we revaluate the items that were produced from it in the past. it leads to very messy accounting, and still doesn't fix the costing issue.

we have a monthly 'manufacturing cost' but the idea to have our heavier products assume more of that cost than our lighter products, because they do actually consume more of the 'hard to nail down' manufacturing costs. so we say that our 'manufacturing cost' for a month is ex. $0.1337 per lb. Even in a month were these cost were to come in at an identical dollar value for the month, if we produced a higher total lbs of finished goods, then our cost per lb for the month will be lower.

we have worked with a partner to try and add a customization that would add an indicator in a work center that would make the system calculate the output of a work center by multiplying the output by the produced item's unit of measure, but it doesn't work when backward flushing.

Thank you for your response
Robert Jolliffe 859 on at

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RE: Production costing by Weight of finished good

Hi Austin,

You might be able to create an item that is stocked in Lbs (or Kg) and give it a cost and add it as a component of every production BOM. This item adds costs based on weight to anything that's manufactured.

a) This might mean having to inventory some $ value of fake "weight" inventory that accounting won't like
b) Unless the cost per unit weight is the same across all production, you could need a lot of these.

Your idea of having multiple versions of the same work center is fine unless you want to do capacity planning or scheduling in the future. Maybe there is one work center and many machine centers? But even that will cause the system to assume you have many more work centers/machine centers and capacity than you really have.

There is an item overhead % that can be assigned at the item level. Perhaps that would work (someone who understands that function better than me should add their .$05).

To be honest, I would normally start by challenging why or how this is the way you cost? If it is legitimate that it has to be done this way, I'd suggest some customization to do this because the twisting and bending of out of the box to try and achieve this would almost certainly have unexpected consequences.

Final Thought: Normally any costs that are accumulated come from somewhere else. Typically the sources are one of labor, overhead, materials or outside services. Which of those 4 types of costs are these extra costs from the weight of the product? Do you just use weight as an "approximation of cost" or is it an actual hard cost that gets added?

Thanks,

Production costing by Weight of finished good

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