Costing

Costing functions

• Calculate the estimated costs of manufactured products
• Perform analyzes to reduce costs
• Establish plant budgets
• Determine the actual cost of manufactured products
• Calculate stock value
• Analyze and explain the variances between the estimated cost and the actual cost

Estimated Cost Calculation

Determining the cost of manufactured items can be done through several stages as shown in the figure.

From the budgets developed by the company, there is a breakdown of costs between cost centers and are assigned to a type of cost (defined in the budget lines). Budgets of working hours for each of the cost centers are entered. Hourly rates by type of cost are calculated.

All work centers related to a cost center have the hourly rates of the cost center. For the subcontracting work centers (which correspond to a particular subcontractor), hourly rates are entered directly.

Fixed and variable costs of each routing operation are calculated (fixed costs correspond to the machine and labor setup time, variable costs correspond to the operation times).

The standard purchase price of purchased items are entered. Through the BOM, the cost of materials contained in each item made is calculated.

Overhead rates are entered. They will overload the costs calculated (materials, machine, labor).

Various options can be selected in the costs rollup procedure. The costs of manufactured items are calculated by type of cost.

Actual Costs Calculation

Actual costs are calculated from actual consumption of resources
- Materials and components actually consumed (inventory issues),
- The actual manufacturing time (production reporting),
valued at standfard cost.

Finally, an analysis is made to explain the differences between estimated costs and actual costs.