Route Cost Categories issue

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Posted on by JordanH

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Hi all, I am trying to find more information on the Route Cost Categories form and cannot seem to find anything online. You can navigate to this form by Production Control > Setup > Routes > Cost Categories.

I believe these accounts are set up incorrectly for my company but cannot find any resources to explain the different functions in this form. Specifically under the Ledger - Resources header. What is the purpose of the options "WIP Issue", "Resources Issues", and "Resource Issues, offset account" and what accounts should be assigned to these options?

In our AX, the option for "WIP Account" is assigned to our "Equipment Cost WIP" Account which should be good.
The options "WIP Issue" AND the "Resource Issue" are assigned the same account, a "Cost Allocation" account, which I believe is wrong.
And the option "Resource Issues Offset Account" is assigned to the "Finished Goods" clearing account, which I believe is wrong.

Unfortunately I cannot find any resources to explain the usage of these options or how they should be properly set up. All I know for sure is that the WIP Account is in a constant growing debit position, which is wrong, the account that is assigned to the "WIP Issue" and "Resource Issue" option is in a constant MASSIVE credit position (which is causing a negative COGS, obviously wrong).

If anyone could give me an explanation of how the options in this form work that would be a great help so I can ensure they are set up correctly.

Thanks,

JordanH

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Ludwig Reinhard Microsoft Employee on at

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Hello JordanH,

Have you setup your production postings according to 'items and categories' or 'items and ressources'?

To find out how you setup the ledger accounts for in the categories (or ressources) form, take a look at the USMF MS contoso company where you can find an exaple how this setup can be made.

If you cannot make a good progress then please post screenprints of your current setup and let us know how you want the system to post transactions (DR/CR) by providing a simplified example.

Can help you defining the accounts then.

Best regards,

Ludwig

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JordanH 120 on at

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I have attached a screen clip of our cost categories. And I believe they are set up as "items and resources". As you can see from the list, there are different machines as well as manual labor, which indicates resources.

The account 16210 is the costing pool for "WIP Equipment", it catches all equipment costs into this one account.

The account 16190 is the "Finished Goods" account.
The account 51210 is called "Equipment Cost Allocation", and I don't think this account should be in here, or if it is its referenced incorrectly.

Now, how I need these to work in a simple example is. Lets take the item highlighted in the screen clip, the Waterjet. The Cost Price is hourly, so lets say we have an order and it requires exactly 1 hour on the waterjet and nothing else. Once the Waterjet tasks gets completed it should Debit 16210 / Credit Raw Material $170. Once posted as finished, Debit 16910 / Credit 16210 $170. Then once the sale is created move Debit Cost of Goods sold / Credit 16910 $170.

Nowhere in my analysis of how these should work include this 51210 account, and I am not sure why this account even exists. When I took over the books this was never explained to me and I would be happy removing it from the production transactions.

Hope that explanation helps,

JordanH

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Ludwig Reinhard Microsoft Employee on at

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Hi JordanH,

The setup that you shared creates the following posting:

When the equipment task if completed (transaction posting types in brackets)

DR: 16210 'WIP' (Production WiP)

CR: 51210 'Equipment Cost allocation' (Production WiP issue)

That is ok in my opinion because your equipment has a couple of costs, such as depreciation, repair expenses, etc. that are posted in the ordinary process of business. Usually for those costs you post

DR: Expense

CR: Vendor or Fixed Assets.

What the first transaction does is thus, it allocates those expenses to the product that is currently in production. For that reason, the offset account should be a P&L account. Otherwise, you record (a fraction of) your expense double.

Does this make sense to you?

The accounts that you see in the 'accounts costing' section at the very bottom of the form create the following posting:

DR: 16190 'Finished goods' (Resource issue offset account)

CR: 51210 P&L account (Resource issue)

Here the idea is the same. You produce a finished good and get that by debiting the 16190 account. The credit account takes care of the fraction of your expenses, depreciation, etc. that go into this product because the equipment was used in production.

The raw material transactions you referred to are not handled in the cost category form.

The setup of the postings - the consumption - of the raw materials is defined in the inventory posting matrix under inventory - setup - posting - posting - production tab.

Here you probably have different WIP and stock accounts setup.

The main issue in understanding your specific production posting setup is to take a look at all of the inventory and cost category postings that have been setup.

The easiest way to do that is posting a couple of production orders in a demo/test system and analyzing the postings generated after each production step is finished.

This can be a daunting and lengthy task because AX creates many production related postings but I do not know a shortcut or any other way to ensure that those postings are ok.

Best regards,

Ludwig

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JordanH 120 on at

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Thank you for your response.

This gives me an area to begin testing. If I am understanding you, the production is set up correctly in terms of the accounts? This Allocation account is set up as a P&L account, however the amount that is it allocating is extremely high. It is in-fact so high that it is causing our total Cost of Goods sold account to be a credit value. Just to put it in perspective, an idea of what is shown on our Income Statement shows our total costs as $1700, and our Equipment Allocation is ($975), Overhead Allocation is ($637), SG&A Allocation is $(346). Which is causing a negative COGS of ($258)

I understand needing to amortize the costs over production, It just seems way to high.

Also the other problem with this is that our WIP account for Equipment Cost related to this (16210) is constantly growing and rarely gets credited. This is why this set up looks strange to me. For example, it currently has a balance of 600, when I know for a fact we only have about 150 of actual work in process TOTAL on the shop floor, based on our sales, and this WIP Equipment should only be a fraction of total WIP. As work finishes it should be getting credited more but it is not.

JordanH

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Ludwig Reinhard Microsoft Employee on at

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Hello Jordan H,

The total balance on the Cogs account shouldn't change.

Can you post additional screenshots of the inventory posting matrix for each section of the production tab?

In addition, do you have a coating sheet setup and work with charge allocations there?

If so, please also post some screenshots so that I can replicate your setup.

Many thanks and best regards

Ludwig

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JordanH 120 on at

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This will be a bit of a long post because of the screenshots.

Yes we have a costing sheet with charge allocations but it is not set up for Equipment Costs, it is only set up for Indirect Overhead and SG&A Overhead. I am just not sure if its a flat rate or percentage. The "Behavior" setting for the direct costs is set to Variable Cost, for all 3 of them.

Both Indirect Rates are "Subtype" Process.

Background information:

Account #'s 15xxx - Inventory

Accounts #'s 50xxx - Expense

Account #'s 16xxx - WIP

Account # 16910 (Finished Goods)

Account # 51310 (Overhead Allocation)

Account # 51380 (SG&A Allocation)

Thank you again for all your help.

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Ludwig Reinhard Microsoft Employee on at

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Hi JordanH,

I think that you have by far too many accounts setup in several sections. As an example, in the production receipt section I can identify a raw materials account but I believe that you do not produce raw materials, right?

About the production postings I tried to list you the accounts used during the different steps in the next screenprint for the first production steps:

What AX does is posting the picking list and route consumption (plus indirect costs) on one or more WIP accounts. These accounts are then cleared when the production is reported as finished. This report as finished job does usually not fully clear your wip account(s) because often you consume more material, price have changed, etc.

=> Please double check your report as finished accounts because I have not seen such a setup and as a result you might see at least temporarily wrong balances.

When you end the production the following postings are made:

Please note the grey highlighted cells that I entered. Some companies use a single WIP account for those postings but I prefer using separate accounts as they give you a detailed information on the production costs and post those costs directly on ledger accounts.

Note: I did not try to enter your ledger accounts but rather entered the different posting transaction types. The account and group setups were a bit too complex for me and I did not understand all groups. What is important though is that you understand what accounts Dynamics debits and credits and what amounts are used.

I hope that those screenprints shed a bit light on your postings and help you to get things right.

Best regards,

Ludwig

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JordanH 120 on at

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Thank you Ludwig,

This gives me most of the information I was looking for.

For the "Report as finished receipt" transaction you have highlighted red. From tracing our production postings to my understanding what happens is items will be pulled out of inventory, have value added from the WIP accounts, then are placed back into the Inventory accounts, before they are sold and removed. As it is a balance sheet account it accomplish the same task just not put into a finished goods style account. When it should be going into this Finished Goods account, and then from there into a Cost of Goods Sold account, to complete the tracking of our costs for that production.

I will test, but I believe if I change the "Report as Finished Receipt" to a Finished Goods account.

After the Report as Finished stage happens, what is the next stage? If I change that I need to ensure I change the next step to match it. I believe it is the "Sales" Stage but I want to ask to make sure.

JordanH

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Ludwig Reinhard Microsoft Employee on at

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Good Morning JordanH,

You are right. After ending the production order you can sell the finished good for example through a sales order. When doing that your item costs will be posted as COGS at the time the customer invoice is created.

Best regards,

Ludwig

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