2.1 Costing scenario
Chapter 1 introduced a process for using templates to allocate activities to a cost center. The standard way for assigning activity costs in product costing is through the costing definition of work centers that are used in a routing. Cost center/activity type costs are allocated to the product using the formulas assigned to the work center based on the lot size quantity assigned to the material cost estimate. This works well for picking up machine and labor costs, but other overhead costs cannot be determined in detail without using templates. They can calculate activity quantities that are based on specific characteristics associated with the material and the order. The following product costing scenario further demonstrates the power of templates and template allocations.
Plant P100 makes widgets. At the beginning of each production order, the production support department spends two hours setting up the machine. After every 100 widgets are made, the production support department needs to recalibrate the machine. This takes 30 minutes. A finished widget is packed at the end of the process. Packaging requirements vary based on the weight of the widget and whether the widget is declared as a dangerous good. A maximum of 250 kg can be loaded onto a pallet. If a widget is declared a dangerous good, then a special pallet is required for shipping purposes. This special pallet is not only more expensive than standard pallets, but also requires extra handling costs. Quality inspection is performed for each widget. This requires looking at each individual component as well as the final product, and takes half a minute per material. Any widget components that are considered dangerous goods require additional inspection. This inspection takes 1 minute per component.
Three cost centers are used when manufacturing widgets. Cost center 1301 is the manufacturing cost center and the work center WMAKER (Widget Maker) is assigned to that cost center. There are two activity types used for picking up overhead costs from 1301. These are 1000 (machine hours), and 2000 (labor hours). Cost center 1501 is the manufacturing support cost center. This cost center is responsible for machine setups and calibrations. Activity type 9010 represents the cost of 1 hour of services from this cost center. Cost center 1601 is the quality control cost center and is responsible for inspection of the widget components. Activity type 9020 represents the cost of 1 hour of inspection time. Two packaging business processes are used to represent the cost of palletizing and shipping the widgets. Plan costs include both the cost of the pallet and the labor and supply cost associated with preparing the widgets for shipment. Business process BP001 is associated with standard pallets. Business process BP002 represents special pallets that are required when handling dangerous goods.
The material cost estimate for the widgets should not only include the cost of the components, but also the costs of manufacturing, machine setup, quality inspections, and shipping. The manufacturing cost is determined from the formulas and activity types assigned to the WMAKER work center. The remaining costs are determined by using the MANUFACT template.
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