How does DBA determine the cost of manufactured products going from stock into a work order?

When you create a work order, it can be either F or R status; either will pull the BOM as a requirement, or allocation. However, no actual costs are pulled into the work order until the materials are issued to the WO either by WO-G or Backflushing materials at WO-I. Labor can also be entered against the Routing sequences at WO-F or WO-M or by Data Collection or Labor Import.

Once the costs are in the Work Order and parts are finished, you use WO-I to calculate the unit cost and put parts into stock. This cost can be one of 4 possibilities.

1. Use Standard Cost - there is a choice on the screen to use Standard Cost. If you say Y, then the parts will go into stock at current Standard Cost of the parent part regardless of the actual cost in the Work Order.

2. No to Standard cost, Say Y to "Is this the final receipt for this WO?". All cost in the Work Order minus any previous receipts will be divided by the number of parts made & zero out the cost in the WO.

3. No to Standard cost, N to "Is this the final receipt for this WO?". The cost in the WO will be prorated between the finished parts and the balance on the order to calculate a unit cost. This is done on a component by component and Sequence by sequence projection to 100% complete based on costs and % complete thus far, then divided back by the WO quantity to arrive at a unit cost. Any component or sequence with zero cost reported will be projected based on the estimated cost. This algorithm is obviously quite susceptible to labor, quantity complete by sequence and material reporting and is perhaps the worst culprit in DBA of "Garbage in, Garbage out".

4. Regardless how you answer any of the questions, you can override the calculated cost and manually enter a value.

When you close the work order, the program will post any residual costs to the WIP Variance account and zero out the balance in WIP on the Work Order. All residual costs post to the variance, not just overhead or any other specific type. It is the difference between total cost in and finished production out.  If it is a few pennies, it is rounding error; if it is a larger amount then your Finished Production is not accurately reflecting what it actually cost to manufacture the parts.  Perhaps standards are inaccurate.  

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