This chapter lists 11 basic guidelines that should be followed for product costing to work properly and provide good results.
1. Assign all PO lines a realistic supplier price when you send out POs
It is essential that all PO lines are assigned a realistic supplier price, which is translated into a unit cost that is applied to PO receipt transactions. The receipt cost updates the item’s inventory cost and is the cost basis for any subsequent job issue or sales picking transactions.
NOTE: Be aware that any discrepancy between the supplier invoice price entered in the PO Invoices screen and the associated receipt cost gets posted to Inventory Adjustments and makes no cost correction to past inventory transactions.
2. Use Standard Hours completions for labor
With this option, actual labor hours are not collected. Instead, standard hours from the job routing specifications are used for job costing purposes, based on completion quantities or finished status entered in the Job Labor screen. Report labor completions as sequences are finished for timely costing and improved work center queue management.
3. Perform all job transactions in real time
Perform all job issues in real time and report labor as you complete labor sequences. This insures that all WIP costs are accounted for so that finished items can be received to inventory without delay to be available for immediate shipment or issue to other jobs.
4. Receive finished items at a realistic cost with all status indicators in Green
When finished items are received to inventory in the Job Receipts screen, make sure that you have completed all job transactions and are in green light status for status indicators for Sequence, Hours, Issues, and Subcon. If all transactions indicators are green, you can proceed to Final Job Receipt and always make sure the unit cost is realistic, meaning that it is within acceptable range to the estimated job cost and is not affected by an obvious costing error.
5. Perform cost rollups at frequent and regular intervals
Roll up estimated costs at frequent and regular intervals to insure that estimated job costs reflect current work center rates and component costs. Run a Mass Replace update to purchase cost items in the Estimated Purchase Costs screen after any supplier price changes, and immediately run a batch rollup in the Cost Rollup screen afterward to reflect these changes.
6. Review shop rates once per month
Review the variances for direct labor and shop overhead once per month for an appropriate date range (3 months minimum) in the Shop Rates screen and adjust your shop rates as needed if you sense that an absorbed cost variance is trending in any direction away from actual costs. The self-adjusting shop rates are a powerful tool used in conjunction with standard hours completions for labor.
7. Never attempt to adjust past costs
Even when large variances are reported in the Shop Rates screen, never attempt to adjust past costs by reopening jobs or reversing invoices or any other means. These are harmful practices that do not work and cause numerous accounting problems. Large variances are properly handled by variance accounts and do not require correction. Past labor and overhead costs are usually in closed accounting periods and have long ago been co-mingled with other costs and absorbed into the cost of other items.
8. Never make journal entry adjustments to your Inventory account
Never make journal entry adjustments to your Inventory account. This is a self-adjusting account that is always fully reconciled with the total inventory value of stock on hand.
9. Never make journal entry adjustments to your Work in Process account
Never make journal entry adjustments to your Work in Process account. This is a self-adjusting account that is always fully reconciled with underlying job costs.
10. Do not devise your own costing method
WIP accounting is not compatible with any other costing method. If you are accustomed to some other method in your previous system, do not attempt to replicate it in any form or fashion within DBA.
11. Do not use the sales order for costing or planning
Do not use the sales order for costing or planning purposes. This practice yields false numbers, promotes inefficient job planning, and compromises the integrity and effectiveness of DBA’s WIP accounting system. Sales orders should only be used to establish sales demand in terms of quantities and required dates and to establish selling prices.
