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Manufacturing and Inventory Transactions

Manufacturing and Inventory Transactions. And the Affects on Your Financials Statements. Logan Consulting Business Management Consultants.

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Manufacturing and Inventory Transactions

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  1. Manufacturing andInventory Transactions And the Affects on Your Financials Statements

  2. Logan ConsultingBusiness Management Consultants Logan Consulting is a professional services firm committed to helping businesses get the most from their information technology investments. Since 1992, we have been helping companies develop and execute business management and information systems strategies...from ERP selections and implementations to e-business planning to strategic IT applications. Andy Vitullo, Logan Consulting (330-328-4158)

  3. Andy Vitullo, Principal • Former Controller, Accounting Manager, Tax Accountant, Auditor. • CPA, State of Ohio • BS, Accounting – University of Akron (Zips) • Financial Accountant with over 16 years of experience. • An Implementer of ERP with over 10 Years of Experience. • Business Management Consultant Andy Vitullo, Logan Consulting (330-328-4158)

  4. Financial Statement Considerations • Balance Sheet • Inventory Valuation / Valuation Approach • Inventory Obsolescence • Inventory Shrink • Income Statement • Standard Cost of Sales • Period Expenses (Other Cost of Sales) Andy Vitullo, Logan Consulting (330-328-4158)

  5. Cash Flow • What is a better Asset to Hold – Inventory or Cash? • Inventory – Your challenge is to hold the least amount of inventory to properly satisfy your customer requirements. • Cash - Can you convert your cash to inventory (timely) and still satisfy your customer requirements. Andy Vitullo, Logan Consulting (330-328-4158)

  6. Balance Sheet • Inventory Valuations Methods • Standard Costing - Static Cost • Evaluate Performance • Procurement Cycle • Manufacturing Cycle • Average Costing • MFG/PRO has same general approach. • Costs are Constantly Moving Andy Vitullo, Logan Consulting (330-328-4158)

  7. Balance Sheet • Standard Cost of Purchase Parts • Expected Price you will pay for the part over a period of time. • Variances (Period Expenses/ Other COS) • Purchase Prices (5.13.5) • AP Variances (Payment Hold) • Timing issues ( Timely Transactions / Accurate POs) • Do you include an Overhead Component to the cost of your Purchased Parts? (Freight/ Carrying Costs) Andy Vitullo, Logan Consulting (330-328-4158)

  8. Balance Sheet Cost Profile Manufactured Parts • Material cost of components • Labor, Burden and Subcontract derived from the routing and work center. • Overhead can be a factor the other cost components or a factor of multiple cost components. (1.4.21). Andy Vitullo, Logan Consulting (330-328-4158)

  9. Income Statement • Other Cost of Sales • PPV • AP Rate/Usage • Materials Rate/Usage • Labor /Burden/Sub Contract Variances • Significant variances incurred represent unanticipated results from your Business Plan Andy Vitullo, Logan Consulting (330-328-4158)

  10. Income Statement • Absorption • The Expected Labor / Burden / Overhead and Sub Contract vs. Actual amounts incurred for the period. • Goal should be to “fully” absorbed over time. • Continued Unfavorable/Favorable variances implies your runtimes or your labor rates are inaccurate (Cost are Not Accurate) • Change in Mix of Production may impact you absorption. Andy Vitullo, Logan Consulting (330-328-4158)

  11. Income Statement • Period Expenses / Other COS • Should be Managed. • Business Plan should not include or expect Variances. • Should strive minimize period to period. • Continued OTHER COS variances implies inventory valuation issues ( Balance Sheet) • Inventory Value is not fairly stated. • Standard Margins are not accurate. Andy Vitullo, Logan Consulting (330-328-4158)

  12. MFG/PRO Setup • Purchased Part Cost Maintenance • Insert cost in Material this level in either 1.4.1/1.4.9 or 1.4.18 (Site Costing) • Do you have different costs for items at different sites? Look at the clearing account in 3.24 to capture the delta. • Do you want to include overhead? 1.4.21 as a factor of material or Labor? On Both? Andy Vitullo, Logan Consulting (330-328-4158)

  13. Item Overhead Cost Update Andy Vitullo, Logan Consulting (330-328-4158)

  14. Setup (Cont.) • Manufactured Costs • Create Your Product Structure (13.5). • Create Your Work Center (14.5) with Labor and Burden Rates. • Create Your Routing with Run Times (14.13.1). • Roll Your Routing (14.13.13). • Roll Your Product Structure (13.12.13). • Apply OH As a factor of ? Andy Vitullo, Logan Consulting (330-328-4158)

  15. Cost Simulation • 30.13 Menu. • Can use to Model Future Standards. • Simulation Work Centers (Future Labor, Burden & Sub-Contract Rates). • Preparation of the Cost Set Before the Plan Year. • Copy of Simulation Cost Set to Standard will initialize the cost to Standard (30.3) Andy Vitullo, Logan Consulting (330-328-4158)

  16. Product Line Maintenance • What accounts Get Affected By Production Processing” GL_Transactions_-_Other_Modules_MFG-PRO.doc • Inventory • WIP • Material Variances (Component Level) • Sub Contract Variances • Method Change Andy Vitullo, Logan Consulting (330-328-4158)

  17. Department Maintenance • Drives Labor and Burden Variances. • Departments Roll up to Cost Centers in “one to one” or “one to many” relationship. • Provides the ability to compare absorption to actual labor cost for view of financial efficiency variances by department/ cost center. Andy Vitullo, Logan Consulting (330-328-4158)

  18. Inventory Account Maintenance • General Ledger Visibility to Inventory with Product Line Site and Location Andy Vitullo, Logan Consulting (330-328-4158)

  19. Work Order Transactions • Work Component Issue • Discreetly issue comments to work orders. • Increase to WIP • Work Order Receipt • Receive parent Item into Inventory. • Decrease to WIP • Work Order Receipt Back Flush (Replaces the Two Transactions above) • Receive parent item into Inventory and relieve component inventory at Standard • Work Order Accounting Close • Accounts for the remaining Balance in WIP. Andy Vitullo, Logan Consulting (330-328-4158)

  20. Work Orders • A Spreadsheet Analysis • Work Order Example.xls Andy Vitullo, Logan Consulting (330-328-4158)

  21. Work Order Accounting Close • Must be completed prior to end of the accounting month to assure the proper timing of expenses and absorption. • Expenses: Material Variances. • Absorption: Labor and Burden Received. • Will only run against those Work Orders where the status of the work order is equal to “C” (closed). Production Control Department is responsible for the accurate status of a Work Order. • Timing of Absorption “the Matching Principle” Andy Vitullo, Logan Consulting (330-328-4158)

  22. Advanced Repetitive Accounting is essentially the same Except for the recognition of labor component. Andy Vitullo, Logan Consulting (330-328-4158)

  23. Advanced Repetitive • You can recognize absorption as a at each milestone operation. • Timing issues minimized. Andy Vitullo, Logan Consulting (330-328-4158)

  24. Post Accumulated Variances If Auto Labor Report is not set to “yes” in your environment, it is essential that you run post accumulated variances before month end or else, you will not record your absorption and your “Plant Efficiency” Calc will suffer. Andy Vitullo, Logan Consulting (330-328-4158)

  25. Timing Issues • Component issues are not Timely • Impact: Inventory is overstated on perpetual. • Work Order Receipts are not Timely • Impact: Inventory Is Understated • Impact: WIP is Overstated • On Time Delivery may Suffer. • Post Accumulated Variances Not Timely • Impact: Recognition of Absorption and period expenses in the wrong accounting period. Andy Vitullo, Logan Consulting (330-328-4158)

  26. Variance Reporting • Favorable Material Usage Variances? Something our of nothing. • Subcontract Variances? Vendor performance vs. inaccurate purchase orders. • Efficiency? Comparison of Actual Labor & Burden to Absorption Andy Vitullo, Logan Consulting (330-328-4158)

  27. Methods Change • Methods Change Conditions • A release Work Order or Cum Order Exist. • Change occurs to a routing or BOM for the item. • Because the Standard for the parent has change in this scenario, the delta between the BOM and Routing at Order Creation and the new valuation of the Parent item is Methods Change. Andy Vitullo, Logan Consulting (330-328-4158)

  28. Inventory Valuation at Physical • Quantity On- Hand Valuations are Straight Forward. • How Do You value WIP? Overhead? • Manage 16.3.4 Report. • Prepare Ahead of Physical Inventory Event. • Make sure only those orders that are open have a status of “R” ( Released). • Accrue for OVERHEAD COST AT the Finished Good Level. Andy Vitullo, Logan Consulting (330-328-4158)

  29. Thank You • Presentation and Accounting Transactions Word Document on the MMUG Website. Andy Vitullo, Logan Consulting (330-328-4158)

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