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Re: FW: Manufacturing accounting

by
Jordi Ballester Alomar
- 17.07.2017 17:45:10
Kevin,

The best practices in manufacturing accounting suggest that costs for direct labor, outside services and overhead portion allocated to production orders should be accrued at the time of manufacturing, and the accrual should be removed once the true labor costs (from pay slips), or actual applied overhead have been identified.

Assuming the following cost breakdown for a finished product:
- Components: $10
- Labor: $10
- Outside Services: $10
The cost of the finished product is considered to be $30

When a manufacturing order is completed the following would occur

Consume components:
Dr. Work In Progress: $10 
Cr. Inventory Raw Materials: $10

Complete work order (internal):
Dr. Work In Progress: $10
Cr. Production Labor: $10

Complete work order (external):
Dr. Work In Progress: $10
Cr. Outside Services: $10

Produce finished product
Dr. Inventory Raw Materials: $30
Cr. Work In Progress: $30 

Inline image 1\
When the employee payslips are entered at end of month:
Dr. Production Labor: $12
Cr. Direct Labor Wages Payable: $12

In order to bring an overall balance to Production Labor, a Production Labor Variances account would be required, generating the need to create the following write-off journal entry at the end of the period:
Dr.  Direct Labor Variances $2
Cr.  Production Labor: $2

Inline image 2

When the supplier invoice for outside services is entered:
Dr. Outside Services for Production: $11
Cr. Accounts Payable: $11

In order to bring an overall balance to Outside Services for Production, an Outside Services for Production Variance account would be required, generating the need to create the following write-off journal entry at the end of the period:
Dr.  Outside Services for Production Variances $1
Cr.  Outside Services for Production: $1

Inline image 3


Under this  schema, if average/real price is to be used for components, the manufacture order should determine the total costs of manufacturing (including average/real price for products, standard labor cost, standard outside services, and standard overhead applied to production) and update the average/real cost of the finished product once the manufacturing order has been completed. 



On Mon, Jul 17, 2017 at 10:15 PM, Kevin McMenamin <Kevin.McMenamin@solnet.co.nz> wrote:

I have a new client who will be using manufacturing accounting iv V9e and I am interested in any feedback/comments the community may have around set up.

 

Many (many) years ago when I was a CFO for a manufacturing business our P&L structure looked like

 

Sales                                                                                                      xxx

Cost of Sales

Purchases                                                                                           xxx

Freight                                                                                                  xxx

Manufacturing Under/Over-recovery                                      xxx

 

Gross Profit                                                                                        xxx

 

Then the chart of accounts had a full structure for the manufacturing operations where the top level was the under/over-recovery, so something like

 

Output at standard cost                                                                xxx

Direct Costs

Labour                                                                                                  xxx

Materials                                                                                             xxx

Freight                                                                                                  xxx

 

Indirect Costs

Rent                                                                                                      xxx

Rates                                                                                                     xxx

Salaries                                                                                                 xxx

 

Etc

 

 

I am struggling to see how this would be set up in V9 as there are no longer view accounts to create a structure – do I need to add the extra categories in myself and extend the standard financial reports to cater for this? If so, has anyone done as I can’t see any obvious modules that do this

 

Thanks

 

 

Kevin McMenamin

ERP Capability Manager

 

Mobile  +64 22 651 3753

Phone  +64 9 977 5805

Email   kevin.mcmenamin@solnet.co.nz

 

Solnet Solutions Limited
Level 19, Crombie Lockwood

191 Queen Street, Auckland 1010
PO Box 6619, Auckland 1141

 

www.solnet.co.nz 

 

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--
Jordi Ballester Alomar
CEO & Founder | Eficent

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