In this task you will review the Setup Cost Factor, Labor Cost Factor, and Overhead Cost Factor settings within your work centers.
Links:
Product Costing Guide – Absorption Costing and Shop Rates
NOTE: Cost Factors are entered on the Detail tab.
Leave most Cost Factors values at one
You do not need to change the cost factors for most Work Centers. Here are a few key exceptions below:
Partially attended Work Center
Some work centers can be loaded and run without needing a worker to be present the entire time. Lets say the Work Center is attended 20% of the time. You can set the labor factor to .20 and the Mfg OH to 1 and this will adjust the absorbed labor costs but still provide the full burden rate for overhead.
One worker operating multiple machines
A work center may consist of four machines that are operated simultaneously by one worker. If you want to cost labor in this work center at 1/4 of the shop rate, you would enter a cost factor of ‘.25’. You can leave the Mfg OH factor at 1.
Fixed Team at the Work Center
Conversely, the work center might be a machine that is run by a team of four workers. All sequences should be set to Standard hours type. If you want to cost labor in this work center to reflect the cost of this team, you would enter a cost factor of ‘4’. You can optionally set the Mfg OH factor to 4.
