Dynamics F/SCM Customer Experience (CRM) Dynamics GP Dynamics Business Central (NAV) Dynamics SL Power Platform Fabric Copilot

[Brenton Leete]

We are a manufacturing company that started using NAV 2015 in February of this year.  I am currently trying to get 2016 closed but am having a hard time wrapping my head around production orders.

Our production order costs and variances are all on the income statement as they should be.  On the work center for our machine shop, we have the average rate per minute for our machinists calculated to help us figure out capacity costs per production order.  We also have the indirect calculation for capacity overhead that takes into account our target fringe and overhead rate combined.  What I can’t figure out is how the difference between your target rates for Fringe and OH and your actuals makes it over to the income statement.  Currently, it looks like our actual fringe costs and OH are put into balance sheet G/L’s under our WIP Inventory section.  Combing through the entries, it doesn’t look like these are backed out in that specific account.  If they are never backed out, I would think your WIP Inventory account on the balance sheet would continue to grow and never truly reflect what you actually have in progress.  Since your variance accounts only reflect the difference between your actual costs (based on your work center calculations) and your standard cost (Routing’s and Bill of Material’s), these actual indirect rates are not used in the variances either.  

Thanks in advance.

——————————
Brenton Leete

——————————

[Ron Ketterling]

Hi, Brenton.

From an accounting perspective, generally speaking, all costs will flow into WIP and the sum of the costs for a production order will go to finished goods. This clears WIP.  Nothing from finished goods goes to the income statement.

The entries you are seeing on the income statement are the balancing entries from the costs going into WIP. These entries reduce your current cost by the amount that went into inventory. You will recognize the cost when you sell the product.

You can use the negative (credit) entries to evaluate how accurately you are estimating your costs.

I am assuming that you are not using Standard Costing for your manufacturing, as that introduces another level into the discussion that I am not covering in this response.

——————————
Ron Ketterling
President
Business Automation Specialists of MN, Inc.
Minneapolis MN
——————————
——————————————-

[Michael Carr]

Are the Overhead and fringe costs included in the posting cost of the FG parts?

In essence does the costing BOM of the FG include the burden costs?

——————————
Michael Carr
VP , Finance
Philadelphia Scientific LLC
Montgomeryville PA
——————————
——————————————-

[Ron Ketterling]

Yes, because he has included it in the cost of the work center.

——————————
Ron Ketterling
President
Business Automation Specialists of MN, Inc.
Minneapolis MN
——————————
——————————————-

[Ken Sebahar]

Be sure you are using only 1 wip account for all of your Inventory Posting Groups, and when you change the Status of the Prod. Order to “Finished”, wip should be cleared out.

——————————
Ken Sebahar
Vice President – Operations
Solution Systems, Inc.
Rolling Meadows IL
——————————
——————————————-

[Brenton Leete]

Let me try to clarify a bit more on this to try and respond to all of the answers you guys posted.  

We build to order for almost everything meaning we do not make it unless we have an order for it.  With that said, we are closing out WIPS into an inventory account on the balance sheet and then using a job journal to get the FG over to the income statement as a cost of good sold.  The majority of the WIP accounts on the balance sheet are being cleared out when the production order is finished with the offset being to the FG inventory account and the variance accounts.  What I don’t understand is when you set up a work center, you put in a target indirect rate that involves fringe and overhead.  If this is never adjusted throughout the year, all of the variances for capacity overhead are taking into account the target rate for both the roll up of the standard cost and the comparison of the actual cost to create the variances.  We have two other accounts in our WIP inventory area.  These are debited on a monthly basis when I run the cost allocation and one of them takes the total WIP labor amount and multiplies it by the actual Fringe rate. The other account takes the total WIP labor amount and multiplies it by the OH rate(I think this is a problem in itself due to OH should be calculated by taking ((Labor + fringe)*OH rate)).  From what I can see, there is no offset to these accounts and no credits ever hitting them which makes me think the total actual fringe calculation and total actual OH calculation for all WIPS is staying on the balance sheet.

We are using the standard costing method for our manufacturing.

——————————
Brenton Leete

——————————
——————————————-

[David Wiser]

This is a simplified model of how this would be set up (using wages as the example):

Pay Actual expenses:
  Debit – Wage Expense
  Credit – Wages Payable

Assign Wages to the Job:
  Debit – WIP
  Credit – Wages Expense Absorbed (this is a contra account in the income statement in the same area as the wage expense)

Finish Job:
  Debit – FG
  Credit  – WIP

Obviously, there are more entries, but the concept is here.  You clear the WIP and move the costs to FG.  On the Income Statement, you show the charge to Wages Expense for your actual wages with an offset posted to the Absorption account.  The net of those two accounts would be your over/under absorbed which is written of in the month.  If a net debit, you are under absorbing your labor.  If a credit, you are over absorbing your labor.  If you track this monthly or quarterly, you may need to adjust the direct cost on your work center cards to get more in line.

Obviously, you would substitute your other cost categories for wages in the above example.  Hope this helps.

——————————
Dave Wiser
Controller
Beckwith & Kuffel
Seattle WA
——————————
——————————————-

[Ron Ketterling]

This sounds like a modification to me. I don’t recall anything like that in stock NAV.

——————————
Ron Ketterling
President
Business Automation Specialists of MN, Inc.
Minneapolis MN
——————————
——————————————-