Manufacturing Costs: Standard Cost vs. Job Cost Collection

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How much does that cost? Do you really know?
In most ERP systems, costs are collected against a job ticket that accounts for labor, material, and workcenter hours, and often G&A overhead costs. This sounds simple enough, but if you are a repetitive supplier with a core fabrication competency, then your cost structure follows a repetitive routing with varying labor, material and overhead expenses, rates, efficiencies, and other workflow based variables. The point is, the workflow for a part is repetitive and “glues” each step of the routing together to provide a single repetitive workflow model for the production part.
A typical ERP system would have a separate work ticket or job order created for each step. When there is a change to the production demand, each work ticket for the combination routing must be maintained. In addition, it is often the case that real floor work-in-process (WIP) is obscured by the addition and subtraction of work in process into and out of inventory.
In a workflow environment, unless the manufactured part is made as a component for future use, parts on the floor are in-process, and not considered to be in stores inventory. Moreover, WIP includes not only primary fabrication, but also secondary operations and outside processing and has a forecasted completion date based on pre-established production rates, move times, queue times and other workflow constraints.
Now come back to the costs. In a repetitive manufacturing system, costs per step are critical for future bids and existing business, because the cost must be considered as a cumulative amount as per-step amounts in the workflow. In addition, not all steps may “make” money. Critical steps, where core competency and equipment are dominant, are priced differently than more commodity based steps. Another factor in real part costs deal with full workflow timings across all combined steps in the routing; because if it on the floor, it’s not out the door.
If you are a repetitive manufacturer or are working with a repetitive manufacturer who needs to a better way to collect manufacturing costs, contact AIM Computer Solutions, Inc.
We are a Michigan Microsoft Silver Certified ERP and ISV Partner with automotive-centered ERP and SCM solutions that are Certified for Microsoft Dynamics.

1 thought on “Manufacturing Costs: Standard Cost vs. Job Cost Collection”

  1. Costing is no easy task. As mentioned in the article, raw material can vary frequently: switched to a new supplier, increase in commodity pricing, etc. Should the cost used for a bid analysis be the inventory cost or the future cost based on upcoming changes? In a competitive world, it is very important to fully understand your costs to optimize pricing and margins. As a cost reduction consultant, I constantly need to fully understand cost to know where to look for savings opportunities.

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