Cost Accounting Deep Dive Lenora Randle, Algood Food Company | Rachel Profitt, RSM

Introductions Lenora Randle Cost Accountant – Algood Food Company – lrandle@algoodfood.com Rachel Profitt Director, RSM Technology Academy RSM US Rachel.Profitt@rsmus.com Demoing with AX 2012 R2 Contoso Data Connect to Sonic Wall Remote Desktop Connection 192.168.250.220 Contoso\administrator Pa$$w0rd Both introduce ourselves

Agenda Discuss tips and tricks and things to watch out for when configuring BOMs, Routes, and Indirect costs. Review the process for creating, estimating, and scheduling production. Demonstrate how to review the BOM and Route for a production order. Review the estimated and actual cost and consumption for a production order. Use the variance analysis statement to review production variances. Demonstrate how to adjust costs for ended production orders. Review Objectives Discuss tips and tricks and things to watch out for when configuring BOMs, Routes, and Indirect costs. Review the process for creating, estimating, and scheduling production. Demonstrate how to review the BOM and Route for a production order. Review the estimated and actual cost and consumption for a production order. Use the variance analysis statement to review production variances. Demonstrate how to adjust costs for ended production orders.

Review Configuration

BOM Setup and Review Rachel will demo in AX Item 11001 – Home Theater System Check to ensure phantom BOMs that roll up to finished good items are marked as phantom. – Else the won’t explode Go line by line on each item Component type Item type Usage or quantity Site and warehouse Verify BOMs are activated and approved.

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Route Setup and Review Lenora will demo in AX Verify naming standard Pack size – Formula (Example: 12/18oz 423) Verify the Site Verify the operations in the Route Quantity per hour Run time Resource groups Verify activated and approved

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Overhead Setup and Review Rachel will demo in AX Verify the costs for the indirect costs for each warehouse and item. Activate new costs.

Calculate and Activating Costs Best Practice: Periodically running a mass calculation in a planned cost costing version to identify issues or missing costs. Use the warnings to identify potential issues when running calculations. Technique: Planned costs Standard costs Techniques Calculate one item Calculate all items Calculate items matching a criteria Lenora Best Practice: Periodically running a mass calculation in a planned cost costing version to identify issues or missing costs. Best Practice: Use the warnings to identify potential issues when running calculations. Rachel Techniques – Planned costs versus standard costs Techniques – Calculate one item versus all items or all items matching a criteria

Explosion Modes Lenora and Rachel Select the method to apply for calculating the cost contributions. The options include the following: Multilevel ─ The calculated cost reflects a complete recalculation of costs for all manufactured components in a multilevel bill. Make to order ─ The calculated cost reflects a complete recalculation for all manufactured components, but the specified quantity will be used to amortize constant costs that are associated with manufactured components instead of each item's standard order quantity). Single level ─ The calculated cost reflects the previously calculated costs of first-level manufactured components. According to BOM line type ─ The calculated cost reflects a complete recalculation of costs for all manufactured components, but considers the formula line type of a manufactured component. For cost calculation purposes, a manufactured component will be treated as a purchased item when the formula line type is item. This option (according to the formula line type) replicates the cost calculations for production order estimates. The explosion mode reflects the value specified for the costing version, which cannot be overridden if you selected a calculation restriction in the Costing versions form. For an order-specific formula calculation, the explosion mode choices are limited to multilevel and make-to-order. The only difference between the two choices involves the quantity basis, which can affect the amortization of constant costs and the use of quantity-sensitive formula versions or route versions.

Warnings for Calculations Lenora and Rachel Override group setup: Select whether to override the warning conditions that are associated with the formula calculation group that is assigned to each item. The formula calculation generates an Infolog that contains warning messages that reflect applicable warning conditions. You must select this check box to enable the individual warning check boxes. No BOM No Route No Resources No Consumption No Cost Price Max age of cost price Min. Contribution margin Identify missing updates: Select whether the Infolog should identify items with an existing pending cost record. This prevents the outcome of updating missing costs. The policy should be used together with the formula calculation policy to update or insert calculated prices only for items with missing costs. Display fallback data: Select whether the Infolog for the formula calculation should identify the items that required the use of a fallback when an item's costs did not exist. The policy does not apply to order-specific formula calculations.

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Costs on Production Orders

Production Process Rachel to process Create Create manually Estimate Release Start Pick Report Labor RAF End Rachel to process Create Create manually Create from master planning Create from a sales order Estimate Runs a “mini BOM calc” for the production order Can configure system to use estimated cost during the RAF Release Used to release to the shop floor if you use MES or 3rd party system Start Letting the system know that you are starting the work. If you configure forward flushing items and labor will be consumed You can configure the start to generate various documents Pick Picking lists You can configure for back flushing during RAF You can configure for forward flushing during the Start If you post picking lists in ledger (parameters control this) the inventory is removed physically and in the ledger moved to WIP. Report Labor – Route Cards or Job Cars based on scheduling type. If you post route cards to the ledger (parameters control this) the labor is posted to the WIP labor account. RAF This is the physical update of the production order. (Just like a packing slip for a SO or a product receipt for a PO) The finished good is added to inventory physically. If you post to the ledger the WIP is recorded as well. If you backflush, this is when the materials or labor would be automatically consumed. End This is the financial update. You cannot modify a production order after ending. The costing information will be finalized. If you post to the ledger, the physical updates are all reversed and the inventory accounts are posted to.

Review BOM/Route Details for Production Lenora to demo in AX Verify the correct BOM/Route version is used. Review item usage Review the operations and process quantity Warehouse requests you to makes substitutions or additions.

Estimated Costs and Consumption for Production Rachel to demo in AX Demo the Estimate cost screen on the Production order Demo the Price calculation screen on the Production order Demo the Cost estimate to costing report – check if this is a custom report

Adjusting and reviewing Costs

Adjusting Costs for Ended Production Lenora to demo in AX Missing realized cost or consumption for an ended production order Operator forgot to click a button System glitch Components are missing in the BOM Found issues from a cycle counts Demo – Inventory closing and adjustment screen

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Variance Analysis Statement Rachel to discuss Inventory and warehouse management > Reports > Analysis > Variance analysis statement Date interval or From and To Date – Requires Date intervals to be set up in General ledger Sorting and grouping: Select the primary focus of the report by selecting from the following items: Item- Identify variances by item, with subtotals by item and by item group. Origin- Identify variances by variance type, with subtotals by item and type. The types include purchase price variance and the production variances for lot size, quantity, price, and substitution. Cost group- Identify variances by cost group, with subtotals by cost group and by cost group type. The types include direct materials, direct manufacturing, indirect, and undefined. Column headings: Select how the report columns should display variance information. Select from the following items: Cost group type- Use four columns to display variances as direct materials, direct manufacturing, indirect, and undefined. Fixed/Variable- Use two columns to display variances as fixed or variable (based on the behavior that is assigned to a cost group). Position- Use four columns to indicate the impact of variances on the value of on-hand, work in process (WIP), deferred and cost of goods sold (COGS). For example, a purchase price variance would be displayed as affecting on-hand value, whereas production variances would be displayed as affecting WIP value. Detail: Select the level of detail that you want in the report. Select from the following items: Transaction- Display transaction detail. No- Do not display transaction detail. Decomposition- Display additional detail about cost groups when the primary focus concerns items or origin. A primary focus on cost groups means that decomposition details are already displayed. Level: Level only applies to the detailed reporting of production variances, when the primary focus concerns items or origin. Select from the following items: Single- Provide a detailed breakdown of variances by component, routing operation, and indirect cost. Multi- Provide a detailed breakdown by cost group. Total- Do not provide a detailed breakdown.

Variance Analysis Statement - Results Rachel to discuss

Cost Estimates and Costing Report Lenora to discuss Production control > Reports > Analysis > Cost estimates and costing report

Reports For In Process Production Raw materials in process Work in process Indirect costs in process Finished items in process Rachel to discuss Reported production activities can be grouped into four types of transactions. Three types of transactions represent the reported consumption of material, routing operations and indirect costs, and one type of transaction represents the reported production activities as finished items. Separate reports provide information about each type of transaction. Use these reports to analyze costs for reported production activities. Information is only displayed for current production orders that have a status of started or reported as finished. Materials in process report − the report lists the picking list transactions that are reported against the current production orders as of a specified transaction date. The report indicates the component’s quantity that is issued and the cost amount for each transaction. Use the selection criteria for a single component item, for example, to print information about the component’s issued quantity against applicable production orders. The quantity that was issued is not updated by the report-as-finished quantities for the parent item. Therefore, the actual quantity of raw materials in process may be overstated. Work in process report − the report lists route (or job) transactions reported against the current production orders as of a specified transaction date. The report indicates the hours, amount and quantity (both good and error) reported for each transaction, and information such as the operation number, operation ID, and operations resource. The report also displays the total time and amount for all transactions against the production order, and the reported as finished quantity. Indirect costs in process report − the report lists the indirect costs that have been incurred against production orders. This data is based on reported consumption of routing operations and components as of a specified transaction date. The report indicates the type of indirect cost (surcharge or rate), the costing sheet code for the indirect cost, and the cost amount for each transaction. The report does not provide information about the route card or pick list transaction that generated the indirect cost. Finished items in process report − the report lists current production orders and the report-as-finished transactions as of a specified transaction date.

Questions and Answers

Final reminders CPE Credit Code: 53C2 Complete Surveys

Speaker contact info Rachel Profitt RSM US Rachel.Profitt@rsmus.com Lenora Randle Algood Food Company lrandle@algoodfood.com