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Production Management & Costing

Accounting for direct costs:

        - Direct raw material costs;

        - Direct labor costs;

        - Other direct cost: buying from outside….

Accounting for indirect expenses:

The indirect expenses are posted by accountant for the arising transactions in the period or automatically allocated for fixed assets, tools and equipment based on the pre-set criteria of those assets, tools and equipment.

- Indirect expenses are including:

• Automatic allocation of depreciation of fixed assets, tools and equipment

• Automatic allocation of prepaid expenses

• Costs of outsourced service

Diversified types of production

- Manufacturing by order:

• Calculating production costs per order.

• Checking order’s status, making gross profit report for each order.

• This method is applied for both finished goods and services.

- Manufacturing by BOM – Bill of Materials

• BOM is set up into accounting software for each product before manufacturing

• A finished product may be set up with many different BOMs

• Quantities of materials used for production are automatically calculated based on BOM;

• Applied for manufacturing by BOM such as manufacturing electronic components, office furniture, etc.

-        Manufacturing by production planning

• Calculating production cost for each production plan

• Cost of finished goods are automatically calculated based on planned unit cost.

• Comparing between production planning and actual

• Manage input and output of inventory, sales reports based on production planning.

• The enterprise can make a code for each production planning and then follow the production status according to that production planning.

- Manufacturing by stages

• The production process can be divided into different stages. Semi products from previous stage become input of next stage until the finished goods are completed.

• Under the costing by stages method, there are two ways to calculate cost of products: Calculating cost of semi products in the previous stage, then transfer to next stage (sequentially transfer method)  and not calculating cost of semi products in the previous stage, only calculating cost of finished goods in the final stage (Parallel transfer method). Suitable method can be chosen depends on the actual of business.

• Applied for manufacturing by stages such as construction, computer assembly, including many semi products, etc.

-        Outsourcing Processing

• Finished goods processed under outsourcing agreement shall be evaluated according to actual prime cost of processing, including direct raw materials cost, outsourcing cost and other costs related to outsourcing process

• Managing output of materials that is used for outsourcing processing and outsourcing expenses. Outsourcing processing is a stage of production stages.

-      Undertake processing

• Managing quantities of materials received for processing.

• Recording the turnover of processing services.

• All raw materials received are managed in detail under production process and outsourcing agreement.

Criteria to allocate general overhead cost

-Many various criteria to allocate general overhead cost are available in 1C: Accounting & Finance. Enterprise can choose one suitable criterion or use all criteria for different kind of expenses or similar kind of expenses.

- The available allocation criteria are including:

Ratio of direct raw materials cost: Determine ratio of the value of raw materials for each finished good to whole value of raw materials for production and then allocate total arising general overhead cost for each product based on that ratio.

Ratio of revenue: the criteria to allocate production cost is the ratio of revenue of each finished good to total revenue of all finished goods. By this way, general overhead cost is automatically allocated for each finished good based on determined ratio. It is usually applied for costing of services.

• Ratio of direct labor cost: Usually applied to service providers where the main cost is labor cost. Direct labor cost is collected and ratio to allocate production cost is determined

• Ratio of estimated unit cost: Estimated unit cost is determined based  on previous period and it is not the real unit cost. Under this method, enterprise will put estimated unit cost when input finished goods to determine total estimated cost. The ratio of estimated cost of each product to total estimated costs is used for production expenses allocation.

• Ratio of input finished goods: By this way, the company will apply the ratio of quantity input of each product to total quantities input of all finished goods to allocate general overhead cost and then calculate production cost.

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