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Costing: how it is calculated

This section describes how the system calculates the cost of an item when a manufacturing order is executed.

The description is based on the logic implemented in the manufacturing order costing module.

General idea​

Cost is calculated based on actuals:

  1. First, actual material consumption is recorded in the manufacturing order.
  2. Based on actual consumption, the material write-off cost is calculated.
  3. The sum of write-offs (plus additional and labor costs, if they are specified) forms the manufacturing order cost.
  4. The order cost is distributed across output (output lines) using distribution coefficients.

What is included in the calculation​

1) Actual material consumption​

The manufacturing order has material lines. For each line, the actual “Consumed” quantity is recorded.

Only lines where:

  • actual consumption is filled in;
  • the item is a stock/material item (participates in inventory accounting)

are included in costing.

2) Material warehouse and Execution date​

Consumption cost is determined taking into account:

  • the Material location (warehouse used for write-off);
  • the Execution date of the manufacturing order.

Practical meaning:

  • if different warehouses have different costs, write-off is valued by the material warehouse;
  • the Execution date fixes the “valuation moment”, i.e. which date is used to take the cost.

3) Additional and labor costs​

The manufacturing order cost may include:

  • Additional costs;
  • Labor costs.

These amounts are included only if they are configured and filled in for your setup.

Formulas​

Material cost​

Material cost for the order is the sum of write-off costs for all material lines.

In other words:

  • for each material line, the write-off amount is calculated;
  • then these amounts are summed into the order cost.

Total manufacturing order cost​

Total order cost consists of:

  1. material cost;
  2. additional costs;
  3. labor costs.

How cost is distributed across output​

The order has output lines (which items/semi-finished goods are produced). The order cost is distributed between output lines.

Distribution coefficient​

An output line can have the “Cost distribution coefficient” filled in.

Line share calculation:

  • if coefficients are filled in on at least one line, then line share = line coefficient / sum of coefficients for the order;
  • if coefficients are not filled in, the whole cost is assigned to the main order item (the output line where the item matches the order item).

Output line cost​

The amount assigned to a specific output line:

output line cost = total order cost × line share

Unit cost​

To get unit cost for an output line:

unit cost = output line cost / actual produced on the line

If actual produced is zero, unit cost cannot be calculated — record production first.

Where to see cost​

Typically, cost is visible:

  • in the manufacturing orders list — fields like “Cost”, “Additional costs”, “Labor costs”, “Total cost”;
  • in manufacturing order reports (for example, in an orders report if it is enabled in reporting).

Typical situations and checks​

Total cost is zero​

Check:

  • whether “Consumed” is filled in on material lines;
  • whether the material storage location is selected;
  • whether the Execution date is set (usually appears when the order is Done).

All cost was assigned to a single output line​

This is normal if distribution coefficients are not filled in. Then the system assigns the whole amount to the main item.

Cost distribution is “not as expected”​

Check:

  • distribution coefficients on output lines;
  • actual produced quantities;
  • whether additional/labor costs were added.