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RE: Production Costing

by
Ursa Information Systems, Ray Carnes
- 08/20/2014 23:39:45

I discussed this topic at length with a CFO at a client that wanted this and he (after discussing with his CPA friends) concluded:


The information required to do this accurately, and the price of collecting it (entering when machines were turned on, clocking in and out, pausing work, allowing for overtime, etc, etc) was high, and would need to be corrected unless it was always 100% up to date and changed in real-time as production costs changed (labor, capital, assets).

 

He therefore decided to have several ‘overhead’ products that represented different ‘units’ of costs.  According to the BoM, a certain quantity of overhead units would be added.  Manufactured products that were simple to build (simple machinery, low labor) had less units than manufactured products that were more complex to build (many machines or more expensive machinery, more labor).    He ended up with three units of overhead production costs.  It was something like $10, $25 and $45.

 

The point was that units were allocated according to the overhead effort believed (educated estimate) to go into making manufactured products.


Each month, the ‘price’ of these overhead products would be adjusted up or down, according to the actual expenses incurred.  This way labor, electricity, machine leasing, rent, etc could all be allocated ‘equitably’ across the production of all manufactured products, and as those costs changed, they would be retroactively included in COGS.

 

Ray.

 

From: rvalyi@akretion.com [mailto:rvalyi@akretion.com]
Sent: Wednesday, August 20, 2014 8:23 PM
To: Community
Subject: Re: Production Costing

 

On Wed, Aug 20, 2014 at 11:45 PM, <david@elaleman.co> wrote:

First, I want to say THANK YOU all!

Fakrudeen, your contribution (content and pad) seem a very good basis for discussion.

Raphael, as I understand you, this so far is private code, so you cannot share, nof even informally? It would be nice if we could as a community accompany your efforts in some way. Maybe the pad is a good reference point and a good tool to aggregate knowledge.

The entity who should take the decision to use its AGPL right is the customer company who owns that code, no me. As the code was developed by another company who didn't use to publish things, I cannot afford interfering in that kind of decision at this stage (probably later when the project is safe with us). Moreover, as it is it would be of little help given all the customers specific logic inside, given it's on 6.1 and given it was written by Python beginners. Now the positive point is that it does roughly what is described in the pad and it seems to have been working fine for one year (one more precision: time of operation is recorded live by manufacturing module, not processed from time-sheets.

Time is really something we have not, so not easy to interact with third parties on this these days. As for money, it hardly buys any more of the required resource here, nor allows cloning ourselves so I'm afraid, unless somebody has a silver bullet, you may hear back from us on that one, but you may need to be patient. On the other hand if somebody does something else before we clean it up, that's a risk taken by the company who didn't asked for a publicly maintained solution since the start.

 

I'll try to keep aligned with Ana and Pedro on that one, already got a meeting with them, telling them roughly this.

 

Regards.

 

--

Raphaël Valyi

Founder and consultant

+55 21 3942-2434

 

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