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Re: Production Costing

by
dar
- 08/26/2014 23:20:31
Hi Ana

It is a very interesting idea. My observation is, as was my previous concern, that there is no link between the analytical account scheme and the asset accounts of the general CoA where to activate finished or half-finished products.

So I rephrase myself and suggest (more in line with Fakrudeen's requirement-definition), that:
  1. Estimate based costing: We limit basic costing to be based on estimated consumption of consumption units (cost drivers)
  2. Validated Costing: We make an extension to that which accounts for actual values of consumption units (cost drivers) consumed. We can divide this further into:
  • online: huge amount of data, really huge implementation project, who needs it, pays it.
  • ex post: limited control and adjustments of the estimations via a kind of pragmatically predefined "consumption inventory" - when volatility of resource costs can be contained or hedged (wages as well as deprecations are very predictable per period, not like raw materials for example), this, however, can be handled manually by organizational routines in a summary way, the added value of masks and logic is very limited, especially if you make a wise choice about the time of your period and thus the frequency of readjustment and control routines. (e.g. monthly would be a good advise for production companies :) Your confidency level of your estimate would be largely enough. (sic!)
It is quite wrong to use analytic accounts because production and inventory plays on the CoA, projects do not. It's obvious why: Projects normally are not activated until they are invoiced, Inventory (among this semi-finished products) in turn is. For that, we need to allocate an expense (P&L) into an asset account (BS). Clear so far.

If we look at the available Odoo concepts, all that we need to produce something is material and resources
Material -> Inventory (there are five nice fields on this concepts which route the direct material costs through the CoA) on internal transactions (3 fields: stock move) and on external transactions (2 fields: sales, purchase)
Resources -> MRP (there are no fields which route the corresponding costs through the CoA) - relevant units of measurement are time, cycles, set up and clean up (maybe there are more). Obviously it must be the produced product (with it's BOM) which routes the costs of its consumed resources towards an account and it must be the resource which determines the origin. Note: Actually, when invoicing a project you've got the external transaction part (see 2 fields above) replayed onto the CoA.

In conclusion what's missing:
- to the resources concept: the consumption out of an CoA expense account (wages, depreciation)
- the interlink to the existing CoA (Inventory valuation account of the produced product) where the costs are summed up into.
- Correspond the existing unit of consumption (cost driver) of a resource (time - cycles btw generally translate into time: x*cylce_time+setup_time+cleanup_time) to the monetary units consumed (depreciation or wages per period).
In one word: mrp_accounting (like there is stock_accounting)

Note on over and under consumption:
Over and under consumption is no issue, because of the complete allocation of the available monetary units to one (!) possible cost drivers. In case of increasing the number of available consumption units (e.g. unexpected night shift), we have probably two cases, if it is labor, your wages will increase disproportionally, so you will generate an additional overhead over the regular price of a consumption unit of labor on your P&L account. If it is a machine, you probably won't adjust the depreciation of that period (although you could). So, you will have consumed more monetary units than are allocated on the machine. You'll need to adjust accordingly. So maybe the accountant will just go to the CoA, create an account "adjustments" and will treat exceptional cases according to his preferences (probably in a summary way). - No one will base his product pricing on such exceptional events like a one-time night shift, so there is even no great need for detail from a management perspective (-> analytic accounts). if its unexpected but more regular you can estimate and make provisions to account for uncertainty.
All unconsumed consumption units, like for example unused labor or unused machine hours or those phantomically caused by exceptional wage increases (unexpected bonus, unexpected night shift, etc), go into the second level of overhead costs and are automatically consumed by the P&L by default. You can always use Ray's suggestion to make your accounts even more precise and allocate various levels of overheads to various phantom products (with own BOMs, if needed) and estimate their influence on each product or even relate this estimate to identified cost drivers. There we have it: ABC. Usually there is a limit to what is sane to activate onto stock and what should be left unallocated as overhead (like probably the CEO's wage).

"Overhead materials" such as electricity are a bit more complicated, but in general you can easly allocate it as a phantom product, and if your melting aluminium, probably it's just a normal raw material you consume in production. If it is significant during set-up or clean-up, we indeed cannot stick to the time as the only cost driver, but I hope this is a marginal case. an easy way out is to sepcify a sort of extra product (sic! - not resource) consumption on setup and cleanup, this again would cover all (!) cases.

I don't see any need, why we should complicate this any further. If a company needs validated costing, well the only sane way is via automated data generation, so very quickly we are in the realm of a really huge implementation project. Everything else can be done by organisational controlling routines and a bit of accountants work. Of course, someone might find it useful to have those routines structured and built into the software, and probably this ex post checking and validating can be done on analytic accounts or some other custom class you might define. But it is reasonable to say to advice the customer in such a case to think about the trade offs he's undergoing and tell him that the volatility of his resource costs is probably quite low. If he then still wants "actual costing" on overhead, you might leave that customer in favor of another one with saner and more sustainable management practices... ;)

This is a reflection based on academical knowledge, limited Odoo knowledge and common sense, If I missed something or got something terribly wrong, please open fire and use your artillery! :)

Yours sencerely

Saludos Cordiales
David Arnold

David Arnold BA HSG / Analista
315 304 13 68/ dar@devco.co

devCO - empresa de consultoría de sistemas (en fundación)
http://www.devco.co

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2014-08-26 18:43 GMT-05:00 Ana Juaristi <ajuaristio@gmail.com>:
No comments/feedback about our aproach? Wrong? Right? Nothing? :)


2014-08-26 1:28 GMT+02:00 Ana Juaristi <ajuaristio@gmail.com>:

It's not true that everybody lost interest, just that a lot of people is still on hollidays. It was my case when I told you that I would not be available last week but I'm this one

Our first contribution about manufacturing cost, including the detail of the task defined, aproved by our customers and "in early progress" by now: I updated: https://pad.odoo.com/p/Production_Costing

Same way we have got almost more than 30 tasks (detailed similar way) related to manufacturing and other areas (some built by now, some waiting to start) that should be all finished in a couple of months. 

As I said before, if you consider it interesting, we can translate/publish/share all the work we are doing by now. Translation for almost all the tasks is made so we need just a place (pad can be the right one) to make them public.

Any help/comment (functional/technical work or even monetary contribution) woud be apreciated. Please let us know about our aproach.

Thank you:
Ana


2014-08-25 7:30 GMT+02:00 Fakrudeen Abbaz <fakrudeenabbaz@gmail.com>:

Hi David

You started this discussion, but between everyone lost interest.  If this is case participation will be less for next topic.

So you have conclude the discussion and proceed with an action plan.
We are ready to do the modification for the community if we agree the specs. Or someone doing we will contribute.  Let us know your thoughts.

Fakrudeen

On Aug 22, 2014 12:23 PM, "Fakrudeen Abbaz" <fakrudeenabbaz@gmail.com> wrote:

Hi Quentin,

 

It’s not about estimating the cost of manufacturing.

Just to calculate the cost of finished products based on the material and resources consumed.

And want to follow the Odoo process. Not planning to rewrite everything from scratch.

Fakrudeen

Topic Pad : https://pad.odoo.com/p/Production_Costing

 

From: Quentin THEURET [mailto:qt@tempo-consulting.fr]
Sent: Friday, August 22, 2014 12:02 PM
To: Community
Subject: Re: Production Costing

 

On 22/08/14 08:25, Quentin THEURET wrote:
> On 21/08/14 14:17, Fakrudeen Abbaz wrote:
>> Hi All,
>> 
>> It’s very interesting discussion going on.
 
During my investigations on this topic, I saw this web-page : 
http://www.octs.com/inventhelp/mfrcost.htm
 
It can be a good basis for specifications.
 
Regards,
 
-- 
Quentin THEURET
 
TeMPO Consulting
20, Avenue de la paix
67000 Strasbourg
France
 
http://www.tempo-consulting.fr
Tel : +33 3 88 56 82 18
Fax : +33 9 70 63 35 46

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--
CEO Avanzosc, S.L : Office phone / Tfono oficina: (+34) 943 02 69 02
Ana Juaristi Olalde : Personal phone: 677 93 42 59. User/usuario skype: Avanzosc
www.openerpsite.com


El contenido de esta comunicación y de toda su documentación anexa es confidencial y se dirige exclusivamente a su destinatario. El uso no autorizado de esta información está prohibido por la legislación vigente. Si usted no es el destinatario le rogamos nos lo indique, no comunique su contenido a terceros y proceda a su destrucción. Disculpe las molestias que le haya ocasionado la recepción indebida de este e-mail. Sus datos figuran en un fichero cuyo titular es Avanzosc, S.L., a quien usted puede dirigirse para ejercer sus derechos de acceso, rectificación, cancelación y oposición en Julio Urkijo, 32, 20720, Azkoitia (Gipuzkoa), Tef. 943 02 69 02 - administracion@avanzosc.com

Komunikazio honen edukia eta dokumentazio erantsia konfidentziala da eta hartzaileak bakarrik jaso beharko luke. Indarrean dagoen legeriak debekatu egiten du bertan eskainitako informazioa baimenik gabe erabiltzea. Komunikazioa zuri iritsi bazaizu, baina zu ez bazara hartzailea, mesedez, guri jakinarazi, eta jasotako informazioa ez inori jakinarazi eta suntsitu. Barkatu okerreko email hau jasotzeak eragindako eragozpenak. Zure datuak Avanzosc, S.L. enpresaren fitxategietan sartuta daude. Zure datuak atzitzea eska dezakezu, bai eta, datuak zuzentzea, ezereztea eta tratamenduari aurka egitea ere. Horretarako, enpresara jo dezakezu, helbide honetan: Julio Urkijo, 32, 20720, Azkoitia (Gipuzkoa), telefonoa: 943 02 69 02 - administracion@avanzosc.com

This message and all documents attached to it are confidential and intended only for the person or entity to which it is addressed. Any use of this information by unauthorised persons is prohibited under current legislation. If you received this message by error, please advise us, destroy it and refrain from communicating its contents to third parties. We apologise for any inconvenience receiving this email improperly may cause to you. Your personal data are included in a file owned by Avanzosc, S.L. If you want to exercise your rights of access, correction, erasure and objection you can contact the Controller at Julio Urkijo, 32, 20720, Azkoitia (Gipuzkoa), T: 943 02 69 02 – administracion@avanzosc.com

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