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Item Standard Cost Components and Contribution Margin

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Posted on by TMCostAccountant

Our company is working with a Partner in the Business Central pre-Go Live stage. The partner (Installation Consultant) has told us there is no way to derive Contribution Margin within BC since the GL posting to Cost of Sales does not break out the three underlying components…Standard Material, Standard Labor, and Standard Overhead but rather lumps them together for purposes of posting the cost to the G/L. Our current ERP separates the three components which allows us to segregate each to its own GL account, therefore, allowing us to calculate Contribution Margin using the Standard Material Cost, and allowing the Standard Labor Cost and Standard Overhead Cost to be components for the Gross Profit Margin calculation. Any thoughts on whether Business Central, in a manufacturing environment, with Standard Item Costing can support Contribution Margin calculations? Thanks!

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DAnny3211 11,397 on at

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RE: Item Standard Cost Components and Contribution Margin

hi

look this

learn.microsoft.com/.../finance-about-calculating-standard-cost

DAniele

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TMCostAccountant 5 on at

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RE: Item Standard Cost Components and Contribution Margin

Thank you for your feedback DAniele. We have set up our Standard Costs using the described BOMs and Routings per the referenced resource you provided. The result is the posting to the GL to Cost of Goods for the entire Item Standard Cost rather than to individual GL acounts to capture the Material Costs and Capacity Costs separately. Once separated, this would allow us to set up a report structure that reflects Material Cost associated with the Sales as a deduction from Net Sales to provide “Contribution Margin” Calc. The Capacity Costs would then be treated as a deduction from Contribution Margin to calculate Gross Profit Margin.

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Inge M. Bruvik 1,105 Moderator on at

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RE: Item Standard Cost Components and Contribution Margin

Even though you are not able to get the posting to G/L exactly like you used to in your old system, maybe you can challange your partner to find a way that you can report the data in a manner that will give you the same detailed information that you used to have?

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TMCostAccountant 5 on at

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RE: Item Standard Cost Components and Contribution Margin

Thank you Inge. Unfortunately, our Installation Consultants were not familiar with the differentiation between Contribution Margin and Gross Profit Margin (they were not familiar with how to issue paper checks to our vendors...initially told us it was not possible in Business Central and then we had to show them where the documentation was that explained the process). Now that we have showed them how to calculate Contribution Margin they are still stuck on how to separate the Sales "Cost of Sales" entry between the component parts. I would like to confirm with someone inside Microsoft as to whether it is possible using the Business Central product since I am aware the Finance product offers a more robust financial application. Thank you!

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Dynamics 365 6 on at

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RE: Item Standard Cost Components and Contribution Margin

Hi

In General Ledger entries you will get the Consolidate Amount i.e., might be Capacity Cost, Subcontracted Cost, Capacity Overhead Cost, Manufacturing Overhead Cost etc.

But You can achieve this by creating "Customize Report" or else if you want to see a particular transaction wise then you can see from Finished Production Order -- > Production Order Statistics.

Hope It will help you

Please Verify my Answer if you find this relevant so that it will help other Community members.

Many Thanks

Aman

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Inge M. Bruvik 1,105 Moderator on at

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RE: Item Standard Cost Components and Contribution Margin

[quote user="TMCostAccountant"]
Thank you Inge. Unfortunately, our Installation Consultants were not familiar with the differentiation between Contribution Margin and Gross Profit Margin (they were not familiar with how to issue paper checks to our vendors...initially told us it was not possible in Business Central and then we had to show them where the documentation was that explained the process). Now that we have showed them how to calculate Contribution Margin they are still stuck on how to separate the Sales "Cost of Sales" entry between the component parts. I would like to confirm with someone inside Microsoft as to whether it is possible using the Business Central product since I am aware the Finance product offers a more robust financial application. Thank you!
[/quote]
Sorry to hear about the experience you have with your partner. There is no standard functionality in Business Central that will do what you ask for, but creating a report for it either within BC or in Power BI should be possible. Maybe you should consider bringing in an additional Dynamics Partner with more experience in your industry.

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