In this task your work center supervisors and workers will receive finished items to inventory.
Education:
Shop Control Guide - Receiving Finished Items to Inventory
Product Costing Guide - Job Receipts and Job Close
Video - Shop Control Guideline Job Receipts
Video - Job Receipt Item Labels
Training Task:
Receive all finished jobs.
Job Receipt Overview
Job Receipt costs establish inventory value
Inventory value for your manufactured items is established by the Job Receipt cost. The job receipt can be always be performed at the Estimated Job Cost or you can choose to have a final receipt balancing cost that leaves zero net WIP. Regardless of the method, the receipt cost will be averaged with any quantities and value on hand to come up with your inventory value.
DBA is a Work in Process accounting system
As you issue materials, subcontract services and labor to a job it accumulates in Work in Process. When you receipt the finished goods output into inventory it will debit Inventory and credit Work in Process. Your final receipt cost in the Job Receipt screen can either be at Estimated Job Cost or, if your input costs are completely reported, you can use the final receipt WIP Balancing Unit Cost to zero out net WIP.
When the Job is Closed, DBA will reconcile all of your input costs (material issues and labor) versus your job receipt output values and post the difference to WIP Adjustments. This ensures that your Inventory and Work in Process accounts are always up to date.
DBA Costing Tips
Review your Estimated Job Costs at Job Release
An essential step of Job Release is to review the Job Cost Inquiry from the Job Control Panel > Job Release screen. Always make sure that your Estimated Job Costs are reasonable. If you see issues with your estimated material costs or labor costs, do not release the Job to production. Correct the costs in the BOM > Estimated Purchase Costs screen and then perform a Batch Cost Rollup. We cannot emphasize strongly enough how important your Estimated Job Costs are at ultimately establishing your inventory costs and cost of goods sold. A little diligence prior to Job Release will avoid a lot of headache down the road.
Only perform Final Job Receipts when all statuses are Green
You should always have all material issues, labor transactions, and subcontract transactions completed prior to final receipt of your output. You should always be performing your material issues in real time and report labor as you complete sequences. The practice of entering labor hours after final job receipt should be avoided.
Special Warning Regarding Actual Hours Routing Sequences
Our experience has shown that it is very difficult to perform actual hours in most manufacturing environments. The reality of most shops are that once an item is finished it is shipped out as soon as possible regardless of whether all of the costing information has been submitted. It is very easy to make errors or omissions in labor entry that can have a very consequential effect on your cost of sales accounts and make your income statement a challenge to interpret. Since the product is likely already out the door, there is not an opportunity to fix the costs after the fact. We strongly recommend Standard hours completions on Routings for most companies.
Use common sense judgment at Job Receipt
The Job Receipt value establishes your inventory cost and cost of goods sold for the item's that you manufacture. Do not just blindly accept the suggested unit cost. Make sure that you always review that the unit cost is reasonable and in line with your expectation. Stop and correct the Job details immediately before receipting the output. You will have very limited ability to correct costs once the Job is finished and the product has been shipped.
Jobs must be Closed in a timely manner to auto-reconcile WIP
Changing a Job from FINISHED to CLOSED (in Job Control Panel - Close Jobs screen) is a required step to auto-reconcile your Work in Process account. When the job is closed, any difference between total job receipt output costs and actual job input costs is posted to your WIP Adjustments account. A common mistake customers make is to not Close jobs that have large variance values. The WIP Adjustment postings are required to balance you your overall cost of sales. You must always Close Jobs and you should aspire to closing Jobs as close to your Finish date as possible.
Never use stock adjustments to bypass standard processes
Stock adjustments should never be used to bypass a standard process such as PO receipts, job receipts, job issues, or order picking. Each standard process has its own unique posting and updating in conformance with the overall process workflow. Bypassing a standard process with stock adjustments severs the process workflow and causes numerous costing, accounting, and job updating problems.
Common Question
Isn’t actual costing more accurate and therefore superior to absorbed costing?
DBA is an absorbed costing system in which all manufacturing costs – material, labor, subcontract services, and overhead – are absorbed rather than actual costs. Absorbed costs are approximate costs rather than actual costs.
Absorbed costing is highly efficient because it enables real time processing throughout the system workflow without introducing any delays for costing purposes.
Actual costing is the desire to apply actual costs to manufactured items with the idea that actual costs are inherently superior to approximate costs. In actual practice, however, actual costing is not practical, desirable, or achievable for these reasons:
•For many items, manufacturing overhead represents the largest cost element. There is no such thing as actual overhead costing. All overhead costing is an arbitrary allocation where general costs are applied to specific items using some type of formula. Our work center overhead rates, derived from an overall calculated shop rate, is superior to any method we know of.
•Attempting to apply actual labor costs, meaning worker wages and benefits, to specific jobs is impractical and not desirable. It would require collecting and entering actual labor hours on every single process, no matter how trivial, and accounting for overtime and downtime and synchronizing job hours with payroll hours. Jobs would be rewarded or penalized depending on which workers happened to be assigned. Instead, our work center labor rates, which are derived from a calculated shop rate, translate all this complexity into approximate hourly rates that provide a more consistent and useful labor costing basis.
•Attempting to have exact material costs would require waiting for supplier invoices to verify actual costs. Instead, we use PO costs so that received items are immediately available to jobs and sales orders. Minor cost variances between the receipt cost and supplier invoice cost get posted to Inventory Adjustments and have minor impact on overall item costs.
Actual costing is most commonplace in light manufacturing systems that do not offer absorbed costing. It is tedious and time-consuming and yields information of little practical value.
Absorbed costing, where you use calculated shop rates for labor and overhead and apply realistic costs to purchase orders, is far easier and much more efficient.
Are alternative costing methods available?
Any costing scheme other than absorption costing has no legitimacy within a WIP accounting system and has a destructive impact. In order for DBA to work properly and provide good results, it is imperative that you cease using other costing schemes and implement absorption accounting as prescribed in this guide.
