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- On January 29, 2019
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You know the old adage where “Everything comes in Three’s”. Well that has been the case the past couple of weeks. At 3 different clients, I have had the request: “We want to add some extra costs to our work orders. How can we do that?” Now we go down the discovery path.
Kim: “What type of costs are we looking at?”
Client #1: “Well we have trucking costs that we incur but we don’t charge it back to the customer’s work order. Sometimes it is a small fee, say $25, but other times we use a bigger truck and the cost is $75. Some of our jobs are cost plus so we want to show the cost.”
Client #2: “We are expensing some pretty big consumable costs on a monthly basis. They only apply to one of our product lines. How can we add this cost to the work orders so we have more accurate product costing?”
Client #3: “We have 1 part that should have extra burdens. I looked into Purchase burdens but the materials used on this part are used on lots of different parts. I looked at adding an extra amount to the resource, but again, this resource is used for different parts. I can’t change the shop resource or it would overinflate the other parts. Got any ideas?”
I could go through the technical solution but it might be a bit boring. I don’t want you to think that accountants are boring. Let’s switch it up a bit. Now let’s imagine that this isn’t any plant but a Chocolate Factory. And who doesn’t like chocolate?
#1 The Delivery Challenge
The delivery cost is the estimated cost to have the “Singing Delivery Person” bestow the beautiful heart-shaped box of chocolates to a “sweetheart”. In this case, the chocolate factory wants to show the offset of this charge against the salary of the singing delivery guy (Let’s call him Roberto), who is on salary. Not all of our chocolates are delivered so we need to control when the delivery charge is used.
The Delivery – Solution
Here’s what we devised. We set up a dummy part ID called “Delivery” with a value of $25. We set up a “Creative” Product Code called X_DELIVERY.
We put an X in front for 2 reasons:
- We want it to be added at the end of the list of any reports by Product Codes
- X for EXPENSE
This product code has the Inventory Accounts and the Adjustment Account as Delivery expense.
We then adjusted in 1,000 units. Since the accounts are the same, there is no impact on the income statement. The DELIVERY part ID is added to the Engineering Masters for our chocolates.
If Roberto delivers the chocolates, then we issue the Delivery Part ID to work order. Here is where the accounting get’s fun. There is a credit to the Delivery expense thus moving cost to the work order. In the end, the cost of Roberto is being reduced.
Also, if Roberto had an extra special delivery that required more songs effort, instead of issuing 1 DELIVERY part ID- 2 or 3 would be issued. More effort, more cost.
#2 The Big Consumables – Challenge
This one was a bit trickier. The chocolate factory (that also made cookies) was spending a lot of money on sprinkles. Some cookies require red sprinkles. Others require white sprinkles. Some require both. Depending on the surface area of the cookie, more sprinkles are needed. We couldn’t just apply a burden rate because the consumption was significantly different between the parts. And some cookies didn’t have any sprinkles.
The Big Consumables – Solution
After a lot of discussions, we bit the bullet (or the cookie) and resigned ourselves to the fact that these “consumables” were in fact material Part ID’s. We decided instead of buying these sprinkles as consumable part ID’s, which had been the practice, that we would buy them as stock-able parts. Each Engineering Master (or recipe) would have the estimated number of sprinkles added. Since there are lots of different cookies with varying surface areas, we had to involve some special magic to get them added (Translation – we need an application to add the sprinklers). Once added, then we could auto-issue the sprinkles.
#3 The Extra Burden – Challenge
Our chocolate factory makes a variety of chocolates. They go into the big mold and heated, then formed into different shapes and sizes. But there is 1 special chocolate where we use extra time and energy. They are slowly cooled and checked on frequently. It’s all the same equipment and all the same materials but a slightly different process. In this case, we want to add extra burden so that our “Elite Chocolate Delight” shows more cost.
The Extra Burden – Solution
Our cooling process, normally has a burden rate of $25 per hour. For our Elite Chocolate Delight, the rate will be $44 per hour. We can do this IF, we change our Burden Rate in Application Global to “Operation” instead of “Resource”. This means it will look at the work order instead of the resource. All we need to do is to change the rate on the Engineering Master to $44. Now each time labour is charged the rate of $44 is used.
There are so many different options in Visual for adding costs. If one of these don’t quite work for you, then you may want to consider these options:
- Labour Tickets based on hours (with or without burden).
- Labour Tickets based on quantity completed. Again, burden could be applied. Think of piece work.
- Purchase burden which is adding a % or unit cost when a part is received. This is really helpful if there is a duty or freight costs for a raw material. Or even a royalty.
- Material issued to Work Orders
(WO). Again, lots of options here-
- Issue based on a Purchase Order linked to a WO
- Issue directly to a WO
- Auto-issue or backflush of materials to WO
- Outside services can be added to a work order with the use of a linked PO.
- Issue burdens which is adding a % or unit cost to a work order whenever a specific material is issued to a WO.
- Materials or service costs can be added from an Accounts Payable invoice. This is extra handy for expense reports.
Next time you want to add some costs to your products, give these options a try. You will just need to figure out which one fits best with your requirements. And that’s where the fun begins.
Kim Worrall, CA, CPA is a Visual ERP Application specialist and owner of Back To Basics headquartered in the Greater Toronto Area. Kim has spent over 20 years consulting with Visual Enterprise, with an in-depth focus on all aspects financial. From costing to reporting to processing transactions as efficiently and accurately as possible. Kim is obsessed with how Visual works. She combines her healthy obsession, her thorough understanding of Visual’s functionality and tables, her puzzling skills and down-to-earth communication style to help companies get the most out of their Visual ERP.
Kim likes to share with her monthly Visual ERP Tips & Trips and monthly Blogs on all topics Visual. Her life’s objective is “To help others Love Visual as much as she does”.