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Cost Accounting

Day 2 Session 1

Brent Barton / Susan Moody

The Gallery

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Cost Accounting

If you can't measure it, how can you manage it?

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Cost Accounting

2

Costing Buckets

Material, labor, overhead, outsourcing

1

G/L Impact

3

Estimated vs Actual Labor Analysis

Build to stock vs customer stock order Internal Inv vs External invoice

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Costing Buckets

1

2

3

Material

Direct Labor

Overhead

4

Outsourcing

All the other “stuff”

All the work

All your stuff

Stuff from other places

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Costing Buckets - Material

Direct Materials are the raw materials and components that roll into part of the finished product. These costs are directly traceable to specific products and typically include the purchase price plus freight, duties, and other acquisition costs.

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Costing Buckets - Material

Cetec ERP’s handling of Direct Materials ensures true and visible actual costs, rendering the standard costing methodology fully dispensable if the aim is solely for better adjustment of standard to actual cost.

Many ERP systems promise to operate on “actual costing” methodology, but in reality, fall short of true actual costing because the technology to facilitate it is just not there.

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Costing Buckets - Material

Standard costing and average costing mostly exist as alternatives to ideal actual costing in systems that are not capable of true actual costing.

Though there are some reasons businesses might opt for standard costing over true actual costing, actual costing is the ideal in nearly every way.

And with CETEC ERP, it is not only ideal but also completely accessible to our customers.

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Costing Buckets - Labor

Direct Labor consists of wages and benefits for employees whom are direct production labor. This includes machine operators, assemblers, and quality inspectors whose time relates to creating specific products.

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Costing Buckets - Labor

Cetec’s handling of labor assumes you will have a third-party payroll module to pay your employees and manage tax compliance. As is true of most all manufacturing ERP systems, Cetec requires you have to have an external payroll processing software no matter what.

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Costing Buckets - Labor

You have two options for that time tracking tool:

An external time tracker (such as TSheets or TimeTracker)

“Internal” tasks within Cetec.

*Note that whatever option you take (#1 or #2 above) for your time tracking tool, you’ll still want to use the Cetec time tracking tool to track direct labor time on actual work orders (for job costing and manufacturing cost accounting, which are seamlessly part of the Cetec ERP system).

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Costing Buckets - Overhead

Overhead encompasses all other costs that cannot be directly traced to specific products but are necessary for production.

This includes:

Indirect materials (lubricants, cleaning supplies)
Indirect labor (maintenance staff, production supervisors)
Factory utilities, rent, and allocated real estate taxes
Equipment depreciation, and building depreciation if the building is owned by the company
Quality control costs

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Costing Buckets - Overhead

Overhead rate is an hourly rate, a value you put into the overhead Config Setting that will be multiplied by the number of hours you log on an order. This gives the orders the overhead amount.

Overhead hourly rate x number of hours logged on an order = overhead amount

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Costing Buckets - Overhead

Two options for calculating Overhead:

Define your company-wide labor/overhead rate via Admin>Config Settings “Overhead Rate” and your rates per work location via Admin>Maintenance>Data Maintenance> OrdlineStatus “Overhead Rate”

*you can log time as “overhead only” with a checkbox on the time log/start work screen

Work time logged at a work location will track both the Direct Labor Rate and the Overhead Rate simultaneously to cost the total labor/overhead on the order.

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Costing Buckets - Overhead

Challenges with overhead costs include determining correct allocations to each product.

There are different options to choose, each with pros and cons.

Frequent allocation bases include direct labor hours, machine hours, or material costs.

Conferencing with your CFO can help determine the appropriate method for your business.

*Cetec ERP can help track employee time, payroll time, labor/overhead time, and overhead time per our support FAQ, URL below: https://cetecerp.com/support/faq/general/How-can-Cetec-ERP-help-me-with-employee-time-tracking-payroll-laboroverhead-time-tracking-and-overhead-time-tracking.html

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Costing Buckets - Outsourcing

Outsource POs allow you to send parts and materials to an outside vendor or contract manufacturer for additional labor/work that your company will not be performing, but is required in the build process for that product.

A helpful guide available on our support site (URL below) covers the prerequisites needed in your Admin settings and steps to create Outsource POs:

Setting up an Outsourcing Work Location in Admin
Setting up an Outsourcing Vendor
Create a unique (recommended) PRC for Outsourcing and a PRCpart
Add Outsource Location to the labor plan on a BOM revision
Create outsource PO from a Work Order

https://cetecerp.com/support/how-to/order-processing-outsource-po.html

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Estimated vs Actual Labor Analysis

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2

3

Production Line

Work Order Location

Direct Labor

Detailed Work Order view of labor comparison

Actual vs Estimate

Actual vs Estimate, Efficiency, Ontime, SVOP

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Build Orders & Internal Invoice vs External Invoice

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2

Build

Sell

Build for stock order is an order that creates a purchase order for the assembled items to be received into stock for a later sale to an external customer. Components are reduced, labor/overhead/outsourcing/misc costs are rolled up into the cost of the finished good and resale is set to the same as the cost.

A second order type is an internal order created from an external customer “build” order for assemblies or subassemblies. When the work order is completed, the process of complete/receive automatically receives the related purchase order for both types of Internal Orders.

Internal Invoice completes/receives material onto your shelf (customer is yourself), rolling up the internal labor, component costs, etc. to relieve Raw Materials and post to FIG in the Internal Invoice ledger.

External Invoice is when you sell directly to the customer. This will factor in labor, material costs, overhead, and miscellaneous costs to post COGS to the External Invoice ledger.