Production Cost Estimates for Men Off-Road Bike
Order ID:89JHGSJE83839 Style:APA/MLA/Harvard/Chicago Pages:5-10 Instructions:
Production Cost Estimates for Men Off-Road Bike
204 CHAPTER 6 The Production Process
In our example, GBI creates a production order for the requested 25 bikes. When the order is saved, the system reserves the necessary materials as well as capacity in the three work centers in the Dallas plant, based on the BOM and routing for the bikes. The production order also includes an initial cost estimate. Figure 6-22 displays the cost estimates for the materials needed to build one bike. For each bike, raw materials are expected to cost $350, wheel assemblies (semifi nished goods) $230, and labor $25. Thus, the estimated cost for the production order is $15,125. (For the sake of simplicity, we will include only material and labor costs in our example and will not take into account other direct costs [e.g., machine and setup] or indirect overhead costs.) When the production order is created, these estimates are copied to the produc- tion order (Figure 6-23). The other columns in the fi gure—actual, target, and variance—will be discussed in later steps in the production process.
Figure 6-22: Production cost estimates for men’s off-road bike
Figure 6-23: Cost estimates in a production order
Demo 6.5: Create a production order
ORDER RELEASE
An order status of created limits the process steps that can be executed. For example, goods movements and confi rmations cannot be performed. An order must be released for production before subsequent steps can be carried out. The system can be confi gured to release an order automatically as soon as it is created. However, if the company needs time to verify the order or to prepare for production, then the order remains in the created status until it is ready for release. In this case, the order must be released manually. Figure 6-24 diagrams the elements of the order release step.
Data
The data that are required to release an order are the order number(s) and system parameters that determine which steps are performed automatically and which ones require manual interventions.
CH006.indd 204CH006.indd 204 31/01/11 6:40 AM31/01/11 6:40 AM
Process 205
Tasks
A production order can be released at either the header level or the operations level. This decision is also determined by the system’s confi guration. When the order is released at the header level, all operations are also released. When release occurs at the operations level, however, only certain operations are affected. These operations have the released status, and the order itself has a partially released status. The remaining operations can be released either manually as needed or automatically, based on trigger points. In our GBI example, the order is released at the header level, meaning that all operations can proceed.
Recall that the BOM and routing data are not automatically reentered into the production order if they are changed after the order is created. Instead, the system must be manually instructed to reenter these data. However, if the BOM or routing data are reentered into the production order after the order has been released, then the order status reverts to created, and the order must be re-released.
Production orders can be released individually or collectively. Several orders with similar characteristics, such as material, location (plant), and dates, can be selected and released together.
Outcomes
When a production order is released for production, subsequent steps identi- fi ed in Figure 6-16 can be executed. In addition, shop fl oor papers that are needed to execute the steps in the work center can be printed. Examples of shop fl oor papers are material withdrawal slips, which are used to obtain the materials needed for production; time tickets, used to record the amount of time required to complete various operations; and operations lists, which spec- ify the operations required to produce the material. Printing shop papers is another task that can be automated. In addition, the SAP ERP system can directly communicate with external shop fl oor control systems or PDC systems that automate the exchange of data between the SAP ERP system and other systems that control physical activity on the production fl oor and work centers.
GOODS ISSUE
The next step in the process is goods issue, in which materials or components are issued to the production order from storage. Figure 6-25 illustrates the ele- ments of the goods issue step. The trigger is the release of the production order. The data, tasks, and outcomes of the goods issue step are the focus of this section.
Figure 6-24: Elements of the order release step
CH006.indd 205CH006.indd 205 31/01/11 6:40 AM31/01/11 6:40 AM
206 CHAPTER 6 The Production Process
Data
The data needed to complete the goods issue step (Figure 6-26) are the pro- duction order number, data about the materials to be issued, organizational data regarding the locations involved, and user input.
Figure 6-25: Elements of the goods issue step
Figure 6-26: Data in a goods issue step
Essentially the system must know which materials or components are to be issued, the desired quantities, and the operations to which they are assigned. Recall that when a production order is created, the materials required for production are reserved. At this point the only materials that can be issued are those that have been (1) included in the reservations and (2) assigned to
CH006.indd 206CH006.indd 206 31/01/11 6:40 AM31/01/11 6:40 AM
Process 207
operations that have been released. The production order includes much of the data related to the goods issue. User input specifi es the actual materials and quantities issued. The materials, quantities, and location (plant, storage loca- tion) can be changed as needed during this step.
Tasks
The principal task in the goods issue step is to issue materials from storage to the production order. An additional step, material staging, is sometimes neces- sary if materials must be prepared for use.
Many companies do not explicitly track the issue of materials to each production order. Instead, they employ backflushing, a technique that auto- matically records the goods issue when the order is confi rmed. Thus, the mate- rials issued are not recorded at the time they are withdrawn from inventory. Consequently, there is a time lag between the actual issue of the materials and the recording of the issue in the ERP system. Nevertheless, many companies prefer this technique because it eliminates a step and can make the production process more effi cient. Backfl ushing can be specifi ed in the material master, routing, or work center data.
Outcomes
There are several signifi cant consequences of a goods issue to a production order.
- The material master is updated to refl ect a reduction in the quan- tity on hand and the inventory value of the material issued.
- General ledger accounts are updated. Specifi cally, the relevant material consumption account(s) and inventory account(s) are updated to refl ect an increase in consumption and a reduction in inventory.
- Material reservations are updated. Specifi cally, reservation quanti- ties are reduced by the quantity of materials issued.
- Because this step involves a goods movement, a material document is created to record the data associated with the movement.
- Because the general ledger accounts are affected, an FI document is created to record fi nancial accounting data.
- Actual costs associated with material consumption are calculated and added to the production order. Recall that the production order is a cost object and serves as a collector of costs incurred during production. During the goods issue step, material costs are debited to the production order. A corresponding management accounting document is created.
- A goods issue document that notes the materials and quantities issued can be created, although it is not required. This document is included with other shop papers that have already been printed, and it serves as a record of which goods were issued. Note that a goods issue document is not the same as a material document. It is used when paper records of the process are maintained.
CH006.indd 207CH006.indd 207 31/01/11 6:40 AM31/01/11 6:40 AM
208 CHAPTER 6 The Production Process
In our example, the quantities in the material master for all the com- ponent materials are reduced by the quantity issued. A corresponding reduc- tion in value is also made. The raw material consumption account (720000) is debited by the total value of the raw materials issued, and a correspond- ing credit is posted to the raw material inventory account (200000). Similar postings are made to the semifi nished goods consumption account and the semifi nished goods inventory account for the wheel assemblies issued to the production order. The actual cost of raw materials needed to produce one bike is $369.50, and each wheel assembly costs $115.00. For 25 bikes, raw mate- rials cost $9,237.50, and the wheel assemblies cost $5,750. (Each bike requires 2 wheel assemblies.) Thus, the total material cost for the production order is $14,987.50 (see Figure 6-27). These material costs are also debited to the pro- duction order as actual costs.
Figure 6-27: Financial impact of a goods issue
Demo 6.6: Goods issue to production order
CONFIRMATIONS
Once the materials are issued to the production order, the actual production takes place on the shop fl oor, in the work centers. When the fi nished goods have been produced, the person completing the work records a confirmation
CH006.indd 208CH006.indd 208 31/01/11 6:40 AM31/01/11 6:40 AM
Process 209
of the work completed in the SAP ERP system. A confi rmation indicates how much work was completed, where it was completed (work center), and who completed it. Figure 6-28 displays the elements of the confi rmation step.
Figure 6-28: Elements of the confi rmation step
Data
The data included in a confi rmation are highlighted in Figure 6-29 and explained below.
Figure 6-29: Data in a confi rmation
- Quantities: How many goods were produced, how many were scrapped, and how many require rework.
- Operations completed: Which operations were completed, such as those involving setup and machines.
- Durations: The dates and times when the operations were started and completed, or the duration of the activities.
- Work center: The physical location in which the operations were carried out.
- Personnel data: Who completed the operations.
- Reason for variance: A reason why the confi rmed quantity is differ- ent from the planned quantity, if this is the case.
CH006.indd 209CH006.indd 209 31/01/11 6:40 AM31/01/11 6:40 AM
210 CHAPTER 6 The Production Process
Tasks
Confi rmations can be recorded for the entire order or for specifi c operations or suboperations. When a confi rmation is recorded for the entire order, then all operations in the order are automatically confi rmed. Confi rmations at the operations level can be recorded in several ways, as explained below.
- Time event confi rmations record setup, processing, and teardown times. Confi rmations can be recorded for both machine time and labor time.
- Time ticket confi rmations record confi rmations periodically. An operation can be either partially or fully confi rmed. Partial confi r- mations consist of data accumulated since the previous confi rma- tion. Consider, for example, a production order in which 30 units of a material are to be processed. The work center employee decides to enter two confi rmations. If the fi rst confi rmation is for 20 units, then the second one will refl ect the quantity subsequently pro- duced, that is, 10 units.
- Collective and fast entry confi rmations confi rm multiple operations at the same time.
- In milestone confi rmation, the confi rmation of an operation auto- matically confi rms the preceding operations. Imagine, for example, that one of the operations in a sequence is an inspection operation. Those units that pass inspection are confi rmed, while the remaining units are sent for rework. In this case, the preceding operations are confi rmed for the quantity that passed inspection.
- Progress confi rmation periodically indicates the total progress of an operation at the time of the confi rmation. Revisiting our example of 30 units of a material, when using progress confi rmation, the ini- tial confi rmation will indicate 20 units, and the second will indicate 30 units.
The above discussion assumes that confi rmations are entered into the system manually. As previously stated, the production process may involve the use of external systems such as PDC systems. In such cases, the PDC system auto- matically provides the confi rmation data.
Outcomes
The obvious outcome of the confi rmation step is that the data associated with the work actually completed are recorded. In addition, the production order is updated to refl ect the quantity of materials that were produced, the activities and operations that were completed, and the dates when the work was performed. The order status is set to either completely confi rmed or partially confi rmed, depending on whether the entire order quantity was produced. In cases of partial confi rmation, the work center employees can make additional confi rmations as they produce more of the material. Because confi rmation indicates that production in one or more work centers has been completed, capacity reservations in these centers are reduced. The work centers can then be used for other purposes.
CH006.indd 210CH006.indd 210 31/01/11 6:40 AM31/01/11 6:40 AM
Process 211
Recall that a work center is associated with a cost center and includes various activities, such as labor and setup. As these activities are consumed dur- ing production and the times are confi rmed in the production order (e.g., labor hours and setup hours), the costs associated with the activities are allocated to the production order, which, as previously explained, serves as an accumula- tor of costs. Note that there is no fi nancial accounting impact at this point. The FI impact occurs when the shop fl oor employees are paid (e.g., weekly). At this time the labor costs are assigned to cost centers associated with the work centers where the employees completed the work. Thus, the cost centers are accumulating labor (and other direct) costs. When a production order is con- fi rmed, the cost centers are credited, and the production order that consumed the labor is debited.
Finally, if the control keys in the last operation permit a goods receipt to be automatically recorded, then this occurs when the last operation is con- fi rmed. We discuss goods receipt in the next section.
In our example, a confi rmation is recorded for the 25 bikes. The labor costs are debited to the production order, and the cost center where the work was completed (work centers) is credited (Figure 6-30). The actual time (labor) required to build the bikes was 775 minutes. Thus, the production order is debited by $645.83, which is the total cost of labor at a previously established hourly rate of $50 (775/60 * 50). Note that the bikes took 31 minutes each to produce and therefore cost more than the planned amount. The production order has accumulated a total of $15,633.33 for material and labor consumed.
Figure 6-30: Financial impact of a confi rmation
Demo 6.7: Confi rm production
GOODS RECEIPT
After production has been completed and confi rmed, the materials produced are placed in fi nished goods inventory. This step is accomplished via a goods receipt against the production order. Figure 6-31 highlights the elements of the goods receipt step.
CH006.indd 211CH006.indd 211 31/01/11 6:40 AM31/01/11 6:40 AM
212 CHAPTER 6 The Production Process
Figure 6-31: Elements of a goods receipt
Demo 6.8: Goods receipt from production
Data
The data associated with a goods receipt are illustrated in Figure 6-32. The production order number, quantity received, date, and location (plant and storage location) are provided by the user based on the completed work. Organizational data associated with the location and master data associated with the material are obtained automatically by the system. The material mas- ter is used to determine which inventory account needs to be updated and how the material is to be valued (e.g., standard price or moving average price). It also indicates whether the material can be stored in the specifi ed location and whether there are any special storage requirements.
Figure 6-32: Data in a goods receipt
Tasks
The primary task in goods receipt is to physically receive the materials from the shop fl oor and place them in the appropriate storage location. If the
CH006.indd 212CH006.indd 212 31/01/11 6:40 AM31/01/11 6:40 AM
Process 213
storage location employs a warehouse management (WM) system, then a transfer requirement is created to trigger additional WM steps. We discuss WM processes in Chapter 7.
Outcomes
The goods receipt step generates several signifi cant outcomes. To begin with, the quantity on hand and the value of the inventory are updated in the mate- rial master. The price control fi eld in the material master determines how the material is valued (i.e., standard price or moving average price). Appropriate general ledger accounts are also updated to refl ect the fi nancial consequences of the goods receipt. For example, the inventory account determined by the data in the material master is debited, and the manufacturing output settle- ment account is credited. If the price control in the material master is set to standard price and the actual production costs differ from this price, then this difference or variance is accounted for when the order is settled. (We discuss order settlement in the next section.) A corresponding FI document is cre- ated. The manufacturing output settlement account represents a “cost of goods manufactured” account. Other labels for this account include “plant activity account” and “factory output account.” If the price control is set to moving average price, then the material is valued at a price that is determined by the system based on how the system is confi gured. Details of this technique are beyond the scope of this book.
The postings related to our example are illustrated in Figure 6-33. Postings are based on the target cost of the production order. Recall that planned cost is the cost expected to be incurred when the planned quantity is produced. In contrast, the target cost is the cost expected to be incurred for the actual quantity produced. Note, however, that both planned costs and target costs are based on the standard cost estimates, when the price control in the mate- rial master is standard cost. In our example, the target cost is the same as the planned cost because the actual quantity produced is the same as the planned quantity. However, if the actual quantity produced had been 20 instead of 25, then the target cost would be less than the planned cost. Specifi cally, the target material cost would be $11,600, and the labor cost would be $500 (refer to Figure 6-22, which illustrates cost calculations for 25 bikes).
Figure 6-33: Financial impact of a goods receipt
CH006.indd 213CH006.indd 213 31/01/11 6:40 AM31/01/11 6:40 AM
214 CHAPTER 6 The Production Process
In our example, the target cost is the same as the planned cost, and the production order is credited by $15,125. At the same time, the fi nished goods inventory account is debited by this amount, and the manufacturing output settlement account is credited. These steps leave a balance of $508.33 in the production order. This amount, which is the difference between the debits (actual cost) and credits (target cost) in the production order, constitutes a variance. We discuss variances in the next section.
After the goods receipt step has been completed, the status of the pro- duction order is updated to either delivered or partially delivered. Like goods issue, goods receipt can be automated to save time and enhance effi ciency. In such cases the ERP system automatically records a goods receipt at the time of confi rmation.
Production Cost Estimates for Men Off-Road Bike
RUBRIC
Excellent Quality
95-100%
Introduction 45-41 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Literature Support
91-84 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Methodology
58-53 points
Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met.
Average Score
50-85%
40-38 points
More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.
83-76 points
Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.
52-49 points
Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.
Poor Quality
0-45%
37-1 points
The background and/or significance are missing. No search history information is provided.
75-1 points
Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.
48-1 points
There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met
You Can Also Place the Order at www.collegepaper.us/orders/ordernow or www.crucialessay.com/orders/ordernow