About Job Costing
Job Costing allows you to trace and analyze
actual cost for a job in the general ledger, and to update cost of sales with
this actual cost when the job is finished. A job is defined as a minor project.
This document aims to give the reader a sufficient conceptual
understanding of how Job Costing works in IFS Applications, and what can be
achieved by setting up the application in different ways. Also offered are four scenarios
describing how the effect of different accounting setups on IFS Applications.
Job Costing is not a component of its own in IFS
Applications. Instead, Job Costing utilizes functionality in other components in
order to fulfill its tasks. Even though most components in IFS Applications can
be said to be influenced by Job Costing, or to influence Job Costing themselves,
only a few are really central to the functioning of Job Costing. In this
section, we will describe these central components and
building blocks, and their roles in making
Job Costing work. A brief description of the basic flow through IFS Applications
regarding Job Costing is also presented.
General Ledger
The functionality in the general ledger is really central
in Job Costing, both for analysis and for setting up basic data. Job costing
utilizes the project functionality that is available in the general ledger, such that a job is treated as a financial project.
Since the job should be created automatically when
initiated from customer order line, all the required information is stored in
templates using the project group functionality. When the job is created, it is
handled as a project. The financial analysis of a job or a group of jobs is
done in either balance analysis or project analysis. It is not different
from the normal project follow-up, however it is of course possible to separate jobs
from projects.
A job should be closed once it is finished. The close job
functionality uses the close project functionality in the General Ledger. A job
can be closed directly from a special window in the General Ledger.
Accounting Rules
Accounting rules play a central role on how
Job Costing works and what can be analyzed in the general ledger. However, there are
no special features in accounting rules regarding Job Costing. Job Costing only
requires that accounting rules are set up in a specific
way.
DOP
There is a one-to-one relationship between a DOP header and a
Job (financial project). The DOP holds together all purchasing and manufacturing
for a single job via the DOP structure, and the inheritance of pre-accounting information throughout the structure.
DOP can also be used for a deep and thorough analysis of
a single job.
Purchase Order & Shop Order
Purchase order and shop order play a central role in Job
Costing since it is their transactions that form the foundation for the
financial follow-up of jobs. The ordinary transactions, however, inherit the Job ID from DOP in one code part in the pre-accounting.
Customer Order
Because every job is initiated from a customer order line and the customer order
line's pre-accounting is inherited through the DOP-structure, all transactions are related to
the job. Thus, if the pre-accounting on the customer order line is wrong, basically
every transaction will be posted incorrectly. In addition, since the job cannot
be closed until the part on the customer order line is
delivered and invoiced, the customer order also determines whether a job can be
closed.
Basic Flow in Job Costing
The basic flow involves creating a job on a customer
order line, releasing the customer order, and creating a DOP Header. The
prerequisite to create a job is the creation of the job template in the general
ledger. The customer order must be in the Planned status, and the part must be a
DOP supplied part. A previously created DOP structure can only be connected to a
customer order line that is job-connected if the status of the DOP header is
Created or Unreleased.
The next stage in the Job Costing flow is to handle manufacturing of the DOP part.
This can be done by first creating the DOP structure,
then, if needed, netting quantity to a DOP Order and releasing the DOP structure. The
netting and not reserving the quantity will cause the system to generate transactions
since material will either be connected to the Job or unconnected by these
actions. Then, the sales part is manufactured by executing the pegged orders. Once
the DOP structure is manufactured, the sales part will be reserved for the
specific customer order line and the sales part can be delivered to the
customer. The job functionality will affect all transactions created during the
manufacturing process. All transactions will be marked with the Job ID,
enabling the actual cost for a job to be traced in the general ledger. The
actual cost can be calculated and viewed in DOP. Please note that the actual
cost in the general ledger and DOP might differ due to one of the following
reasons:
- Transactions from Inventory/Shop Order have not yet updated the
accounts in the general ledger. This effect will cease when the job is closed.
- Other indirect costs have been directly entered on the job in the
general ledger.
When the customer order is delivered and invoiced, the job can now be closed. To do this, a balancing takes
place in the general ledger wherein cost of sales is calculated. You can close a
job from different places in the system. One method is to use the Close Job
command in the Operations menu on the customer order line. Other methods include
manually closing a job, or after-schedule closing of all jobs that are possible to
close at the moment. This can be done in IFS Financials. The job can be closed
when all actual costs for the job are registered. This is done when:
- All included purchase orders have matched invoices.
- All transactions generated for the job is transferred to the
general ledger.
You can manually close the job at any time, although doing so may result in
an incorrect job sales cost.
Basic Setup in General Ledger
All basic data concerning a Job is handled in the project
functionality within General Ledger. Since Job costing uses project
functionality, most of the basic data is common for Jobs and financial projects.
Job Series / Project Series
All jobs will be given a Job ID from a number series for
identification purposes. The number series is defined by a prefix (2 characters)
and a start value (maximum 7 characters). The Job ID will be automatically
generated as the next available number from this series. The recommendation is
to use a prefix which easily identifies this as a Job. Please also note that if
IFS Project is used parallel to
job costing, it is important not to give
projects Project IDs that start with the same two characters as the prefix in
the Job number series.
Job Template / Project Group
All jobs are created automatically when initiated from
the customer order line. In order to enable this, some default data is
required for the creation which is handled via templates in the
Project Group
window. In the template, define the name of the project group, the project
type which should be of the type capitalize expenditure, the project series
(job series) to use, and the account to which cost of goods sold should be posted when
closing the job. In the Job Information tab, define which voucher
group and voucher type should be applied when automatically closing a job. Furthermore, indicate whether this project group should be the
default for Jobs, and if you want the job automatically closed after the
customer order line has been finally invoiced.
Job Detail / Project Detail
Once a job is created, you can view basic information on this in the project detail information,
similar to any ordinary project.
However, there is additional information for the job in a separate tab.
Automatic Posting Rule
Depending on how you wish to follow up the cost of
a job in the general ledger, there might be a requirement of an automatic posting
rule which goes into action every time an inventory transaction is updated to the
General Ledger. The different scenarios and the impact of the various
transactions are described in Financial Follow-Up of Jobs. This section describes the
two rules which might be necessary.
Job Inventory, Scenario 2
If you want to have a separate "Job Inventory” in the general ledger, you must prepare an automatic posting rule which will
transfer all job-related materials from ordinary inventory to the “Job Inventory.”
This is best described in the following example:
- Inventory account is 1400
- Job inventory account is 1410
- Job number series has the prefix JC
- Five code parts are used in the code string
- Job ID is posted in code part C
The original code string to trigger on would then be (in which * = the same
part value as the original posting):
Account |
Cost Center |
Job ID |
Code D |
Code E |
1400 |
% |
JC% |
% |
% |
The original posting should be reversed and the new
posting should be defined as follows:
Account |
Cost Center |
Job ID |
Code D |
Code E |
1410 |
* |
* |
* |
* |
Full Follow-up of All Job Costs, Scenarios 3 & 4
If you want to have a full follow-up of all costs related to the job in the
project analysis in general ledger, prepare an automatic posting rule which
transfers all job-related inventory transactions to a “generic” cost
account. This is best described in the following example:
- Inventory account is 1400
- Generic cost account is 4029
- Job number series has the prefix JC
- Five code parts are used in the code string
- Job ID is posted in code part C
The original code string to trigger on would then be (in which * = the same
part value as the original posting):
Account |
Cost Center |
Job ID |
Code D |
Code E |
1400 |
% |
JC% |
% |
% |
The original posting should be reversed and the new
posting should be defined as follows:
Account |
Cost Center |
Job ID |
Code D |
Code E |
4029 |
* |
* |
* |
* |
Basic Setup in Accounting Rules
Because there is no specific job functionality in Accounting Rules, this section will describe how to
set up different rules in Accounting Rules to enable Job Costing.
For more information on Accounting Rules functionality, refer to the user documentation on Accounting Rules.
Definition of Code String
Job Costing is based on project functionality, and
consequently one code part must be defined with the code part function
“Project Accounting.”
Pre-Accounting
The follow-up in both accounts in the general ledger, and
the project analysis in the general ledger, is based on the Job ID. Therefore it
is essential that the Job ID is part of the code string on all postings which
are related to the job. This is primarily achieved by using the pre-accounting
functionality.
Posting Control
This short section on posting control is aimed as a
reminder of some important issues concerning posting control and what has to be
set-up in order to have job costing functioning as desired. This is by no means a
complete guide on how to set-up posting control. Thus, the information here is
very brief. If you require more information on posting control and on how to set
things up, please refer to the user documentation.
Pre-accounting in distribution and manufacturing: Pre-accounting must be made available by defining
it in posting control, so as to have it available for all
transactions generated in DOP, Shop Order, Purchase Order, Customer Order, etc. This is
defined by using posting types M100 to M113.
Variances: Please note that there are a number of new posting types
in order to handle the split of variances in shop order. Posting types M120 to
M137.
Inventory transactions and work in progress: Posting type M1 (inventory transactions) and M40 are
central to setting up job costing.
Project accounting: The accounting for the capitalization of a project cost has to
be defined, and this is done by using posting type GP3.
Initiating a Job
A job is always initiated from a customer order line (right
mouse button option). The basic flow involves creating a job on a customer order
line, releasing the customer order, and creating a DOP Header. The customer
order must be in the Planned status, and the part must be a DOP supplied part. A
previously created DOP structure can only be connected to a customer order line
that is job-connected and if the status of the DOP header is Created or Unreleased.
When initiating the job, a job/project is created in the general ledger based on the template information.
You can only overwrite the template information regarding the closing of the job,
i.e., whether this should be done automatically or otherwise when running the final invoicing of the customer order
line.
Closing a Job
Closing a job is the last action that should be done to a
job except for various forms of analysis. The closing of the job will update the
general ledger such that the cost of goods sold is moved from the work in progress
account to the appropriate cost account/s. The closing can be done either
manually or as a scheduled batch job. The customer order line must, however, be
invoiced before closing the job. When done manually, you will receive
information if all transactions follow a certain condition
that determines whether cost of goods sold will be correctly updated or not. The
information will tell you:
- Whether all manufacturing transactions have been transferred to the
hold table in accounting rules.
- Whether all inventory transactions have been transferred to the hold
table in accounting rules.
- Whether all purchase orders are fully invoiced and matched.
- If the general ledger has been updated with the transactions in
the hold table.
You can ignore the information and close the job
even if all transactions have not been updated yet to the general ledger; however, the cost of goods sold will be incorrect.
When scheduled and done automatically by the
application, all the above must be fulfilled before the batch job closes
the job.
Please note the following concerning a job and job closings:
- When reporting manufacturing time for a shop order in Shop Floor
Reporting, no transactions are created before the time is authorized. This
means that the Shop Order can be received and closed without any cost for
reported time. If closing a job includes such a shop order, no cost for the
reported time will be included in the total cost for the job at the time of
closing. However, when the time transactions are created, the cost of the job
will be updated in DOP but not included in the Cost of Sales for the
job.
- If transactions are manually posted to a job after it has been closed,
these costs will not be included in the Cost of Sales for the job.
Financial Follow-Up of Jobs
This section gives some general information on the follow-up and some fundamental rules which apply to job costing.
In addition, we
present three possible scenarios on setting up the application to
obtain different levels of analysis in the general ledger.
Please note that you can perform a detailed follow-up in DOP or directly on related shop orders,
regardless of how you set up the accounting. However, while the follow-up in general ledger can be
done on one or more jobs altogether, the follow-up in DOP is always done per
job and in shop order as a part of a job.
To easily follow the explanations on the different set-up's impact on the financial follow-up,
see the example in Financial Follow-Up of Jobs. For ach scenario,
an explanation is provided on how the events/transactions will
impact this. Each scenario also has an Excel file describing how all transactions are
posted and what the different account balances are after each step.
General
Depending on how you want to follow up your jobs in the
general ledger, you can set up the accounting rules and other rules differently
and achieve different follow-up possibilities. There are two main places in
general ledger, namely balance analysis and project analysis, and one in
DOP with the tab
costing in the DOP header to do the financial follow-up on a job. There are,
however, some fundamentals which apply no matter how the accounting rules are
set up and where the follow-up is done:
- The balance analysis in general ledger will catch any
transaction which has the Job ID in its code string.
- The project analysis in general ledger will catch any cost or
revenue transaction which has the Job ID in its code string,
i.e., transactions that only involve balance accounts that will not show up as project costs.
- Job costing can only be run when using either standard
cost or weighted average value as the inventory valuation method. It is not
advisable to use transaction based or periodic weighted average as supplier invoice
consideration.
- All inventory transactions for DOP-parts are done at inventory
value. The actual cost is caught through variances calculated at supplier
invoice matching and closing of shop orders.
- All inventory transactions of standard parts are done at
inventory value.
- All operations on a shop order are done at standard cost but at
the actual quantity.
- If a job has an excess of one or more parts, these can either be
put into inventory or used by another job. The general principle here to
handle the cost is that the original job will carry any cost/revenue (i.e.
variances) which is linked to the part, while standard inventory or the new job will carry the cost of the part at inventory value. The only new
transactions specifically made to support job costing are these transactions
transferring these costs.
- Costs which are not part of the purchasing process or
manufacturing process will not be available in the DOP analysis of the job, but
rather in the general ledger and project analysis.
- There might be differences between DOP analysis and analysis in
the general ledger due to timing on an ongoing job, i.e., the general ledger
might not be updated with all the latest transactions.
Example
The example shows a simple Job, JC1, with two activities:
- Activity 1, a purchasing activity (purchase order)
- Activity 2, a manufacturing activity (shop order)
In addition to these activities, there is a purchase of standard parts just to show
the difference in postings.
The company in the example uses standard cost for valuation of the inventory.
We have the following eight steps in the example:
- A purchase of standard parts for a total standard cost of 30. The purchase is received into
inventory and then invoiced but now at a total cost of 35.
- A purchase of Job specific parts (DOP-parts) at a total standard cost of 20. The purchase is
received into inventory and then invoiced and matched but now at a total cost of
26. The price variance is capitalized.
- Standard parts are issued to the shop order for a total standard cost of 10.
- Job specific parts (DOP-parts) are issued to the shop order for a total standard cost of 20 (i.e. all of the purchased articles purchased in event 2).
- Refinement costs of labor at a cost of 12 and overhead at a cost of 8 are reported.
- The shop order is received at a standard cost of 45. This gives a total variance of 5 which is
split into labor 3 and OH 2.
- The customer order is shipped.
- The Job is closed
Example in Excel Files: Each scenario below is also presented in an Excel file. The Excel files are called: Scenario
1; Scenario 2, Scenario
3 and Scenario 4. Each file contains the
following tabs:
- Accounting balance step 1 and 2, i.e., a presentation of what the balance analysis would
show after steps 1 and 2.
- Accounting balance step 3 and 4, i.e., a presentation of what the balance analysis would
show after steps 3 and 4.
- Accounting balance step 5 and 6, i.e., a presentation of what the balance analysis would
show after steps 5 and 6.
- Accounting balance step 7 and 8, i.e., a presentation of what the balance analysis would
show after step 7s and 8.
-
Project balance step 1 and 2, i.e., a presentation of what the project analysis would show after
step 1s and 2.
-
Project balance step 3 and 4, i.e., a presentation of what the project analysis would show after
steps 3 and 4.
-
Project balance step 5 and 6, i.e., a presentation of what the project analysis would show after
steps 5 and 6.
-
Project balance step 7 and 8, i.e., a presentation of what the project analysis would show after
steps 7 and 8.
-
Transactions, i.e.,
a presentation of all transactions generated in the scenario. Each
transaction is presented with a reference to the scenario description in each
Chapter 7.x.x.1 below. Furthermore, there is a reference to which posting type,
posting rule, or function that the
posting originates.
General
The objective of setting up
the application following this
scenario is to catch all job-related costs at the time they occur, and post
them to the job in such a way that it is easy to do a proper follow-up at any given
time. Material is not considered as a cost, however, until it is issued to a shop
order when the cost is posted directly to the WIP account, i.e.,
there are no
possibilities to follow-up material costs in the project analysis during the
lifetime of the job. When the job is closed, these costs will show up
as cost of goods sold (std). Please note that transactions to the WIP account in
this scenario would be handled similarly as when job costing is not applied.
This setup could be useful when there is a large number of
jobs, and the jobs are generally quite small both in value and calendar time, and
there is not a direct follow-up in general ledger during the lifetime of the job.
All follow-ups during the lifetime is sufficiently handled in DOP and the follow-up in general ledger is only done afterwards.
Accounts and Posting control
Normal posting control should be set up, with
inventory transactions always going directly to the inventory and WIP-transactions
always going directly to the WIP account.
A specific account for job-related cost of sales is
required. This will be the account used when a job is closed.
Automatic Posting Rule
There is no requirement of an automatic posting rule.
Balance and Project Analysis
The following will be possible to see in project analysis
and balance analysis after each main step in the example.
(Please note that this is only a brief overview of what
is possible to analyze in the general ledger and project analysis, and the only
intention is to give the reader an understanding of the effects of setting up the accounting this way).
After step 1
- Balance analysis will show an inventory value of 30 and a
price variance of 5. No job inventory value since only standard parts
have been purchased so far.
- Project analysis will show a project cost of 0 since no
job specific activities has taken place. The price variance only concerns
standard parts with no relevance to the specific job.
After step 2
- Balance analysis will show an inventory value of 50, a
WIP of 6, and a price variance of 5.
- Project analysis will show a price variance of 6 as the
only cost on the job so far.
After step 3
- Balance analysis will show an inventory value of 40 after
the issuing of standard parts at a value of 10. WIP will be at 16. Price
variance remains at 5.
- Project analysis will show a price variance of 6 as the
only cost on the job so far.
After step 4
- Balance analysis will show an inventory value of 20 after
the issuing of DOP parts of 20. WIP will be 36 as a
consequence. Price
variance remains at 5.
- Project analysis will show a price variance of 6 as the
only cost on the job so far.
After step 5
- Balance analysis will show WIP of 56 after adding
refinement costs of a total of 20. Inventory remains at 20 and price variance
remains at 5.
- Project analysis will show a price variance of 6 as the
only cost on the job so far.
After step 6
- Balance analysis will show an inventory of 65 and a WIP
of 11 after the receipt and closing of the shop order. Please note that all
variances remain as WIP and do not get posted to inventory. Price variance
remains at 5.
- Project analysis will show a price variance of 6, labor
variance of 3 and general OH variance of 2 totaling 11.
After step 7
- Balance analysis will show WIP of 56 after the part on
the customer order line is shipped. Inventory is 20 and price variance remains
at 5.
- Project analysis will show a price variance of 6, labor
variance of 3, general OH variance of 2, and a standard cost of goods sold of 45
totaling 56.
After step 8
- Balance analysis will show a cost of goods sold (Job) of
56. Inventory remains at 20 and price variance remains at 5.
- Project analysis will show exactly the same as after step
7 since the closing of the job in itself does not incur any costs to the job,
i.e., a price variance of 6, labor variance of 3, general OH variance of 2, and a
standard cost of goods sold of 45 totaling 56.
Transactions
The following transactions will be generated at each step
in the example to achieve the above analysis:
- The purchase of standard parts will be posted at arrival to the inventory
account at standard cost, and then the price variance will be
posted to the price variance account at the matching of the invoice.
- The purchase of DOP parts (job
specific parts) will be posted at arrival to the inventory account at standard
cost; the price variance will be
posted to the price variance account at the matching of the invoice; and the price variance will
automatically be transferred to the WIP account (capitalization of costs). This
posting is handled by the project functionality in general ledger.
- Standard parts which are issued
to the shop order will be posted from the inventory account to the job cost
account at standard cost; the cost of the standard parts
will automatically be transferred to the WIP account (capitalization of costs).
This posting is handled by the project functionality in general ledger.
- The DOP parts which are issued
to the shop order will be posted from the inventory account to the WIP account
at standard cost.
- Refinement costs will
be posted to the job cost account when reported (shop order transactions), and
then the
counter-postings in the example are posted as “Internally distributed cost”
since they depend on the user setup and they are of no relevance for this
example. After that, the refinement costs
will automatically be transferred to the WIP account (capitalization of costs)
(this posting is handled by the project functionality in general ledger).
- The shop order is closed. This
receipt results in an inventory transaction at standard cost, a project cost
credit of the full cost of the shop order and variances which are posted to
different accounts depending on which cost buckets have been used on the shop
order. In the example we have used labor variance and general OH variance.
These postings are controlled by new functionality in the shop order and new
control types/posting types. Then the variance postings will
automatically be transferred to the WIP account (capitalization of costs). These
postings is handled by the project functionality in general ledger.
- The part on the customer order
line is shipped, resulting in a posting from Inventory to cost of sales
at standard cost for the parts shipped. After that, the standard cost for the parts
shipped will automatically be posted to the WIP account (capitalization of
costs). This posting is handled by the project functionality in general ledger.
- The customer order is invoiced
and the job is closed. The accumulated cost will then be posted to the specified
cost of sales account for closing (defined on the Job in general ledger via the
Job template). This reversal will be handled by the project functionality in
general ledger. 8a)
General
The aim of setting up the application following this
scenario is to catch all job-related costs at the time they occur, and post
them to the job in such a way that it is easy to do a proper follow-up at any given
time. Material is not considered as a cost, however, until it is issued to a shop
order. In order to still be able to separate job-specific material on a
separate account, however, a “financial job inventory” has been set up for all
materials which is part of a DOP structure.
This setup could be useful when there is a smaller
number of jobs, and the jobs generally are a little larger both in size and calendar
time, and there is a direct follow-up in general ledger during the lifetime of
the job.
Basic Setup for the Job Template
The job template should be set up such that the reversal
transactions at the closing of the job are posted to the account “Cost of
goods sold (Job).”
Accounts and Posting Control
In order to obtain the ideas in this scenario, WIP transactions should be posted to the general job cost account
instead of directly to the WIP account. This is done by using the control type
C56 on the posting type M40. Control type values are “ISDOP” or “NOTDOP”.
A specific account for job-related cost of sales is
required. This will be the account used when a job is closed.
Automatic Posting Rule
There should be an automatic posting rule that
transfers any inventory transaction related to a job from the ordinary inventory account
to the job inventory. Please refer to Job Inventory, Scenario 2, for details on how this rule
should be set up.
Balance and Project Analysis
The following will be possible to view
in project analysis and balance analysis after each main step in the example. Only accounts which
have been affected by the step in question will be commented on for the balance
analysis. On the other hand, project analysis isalways fully commented on since this should be a specification of the
WIP-account at any given point in time.
(Please note that this is only a brief overview of what
is possible to analyze in the general ledger and project analysis, and the only
intention is to give the reader an understanding of the effects of setting up the accounting this way).
After step 1
- Balance analysis will show an inventory value of 30 and a
price variance of 5. There are no job inventory values since so far only standard parts
have been purchased.
- Project analysis will show a project cost of 0 since no
job specific activities has taken place. The price variance only concerns
standard parts with no relevance to the specific job.
After step 2
- Balance analysis will show a job inventory value of 20
and a WIP of 6.
- Project analysis will show a price variance of 6 as the
only cost on the job so far.
After step 3
- Balance analysis will show an inventory value of 20 after
issuance of standard parts at a value of 10. WIP will be at 16.
- Project analysis will show a general job cost of 10 and a
price variance of 6, thus totaling 16.
After step 4 Balance analysis will show a job inventory value of 0
after issuance of DOP parts of 20. As a consequence,
WIP will be 36.
Project analysis will show general job cost of 30 and a
price variance of 6, thus totaling 36.
After step 5
- Balance analysis will show WIP of 56 after adding
refinement costs of a total of 20.
- Project analysis will show general job cost of 50 and a
price variance of 6, thus totaling 56.
After step 6
- Balance analysis will show a job inventory of 45 and a
WIP of 11 after the receipt and closing of the shop order. Please note that all
variances remain as WIP and do not get posted to inventory.
- Project analysis will show a price variance of 6, labor
variance of 3, and general OH variance of 2,
thus totaling 11.
After step 7
- Balance analysis will show WIP of 56 after the part on
the customer order line is shipped. Nothing remains in the job inventory after
shipment but it will not show-up in cost of goods sold until the job is closed,
i.e., the WIP account will not be emptied until then.
- Project analysis will show a price variance of 6, labor
variance of 3, general OH variance of 2, and a standard cost of goods sold of 45, thus totaling 56.
After step 8
- Balance analysis will show a cost of goods sold (Job) of
56.
- Project analysis will show exactly the same as that after step
7 since the closing of the job in itself does not incur any costs to the job. Specifically,
there is a price variance of 6, labor variance of 3, general OH variance of 2, and a
standard cost of goods sold of 45, thus totaling 56.
Transactions
The following transactions will be generated at each step
in the example to achieve the above analysis:
- The purchase of standard parts will be posted at arrival to the inventory
account at standard cost, and then the price variance will be
posted to the price variance account at the matching of the invoice.
- The purchase of DOP parts (job
specific parts) will be posted at arrival to the inventory account at standard
cost; the Automatic Posting Rule (APR) will then transfer the inventory transaction to the job inventory
account; the price variance will be
posted to the price variance account at the matching of the invoice; the price variance will
automatically be transferred to the WIP account (capitalization of costs). This
posting is handled by the project functionality in general ledger.
- Standard parts which are issued
to the shop order will be posted from the inventory account to the job cost
account at standard cost. Next, the cost of the standard parts
will automatically be transferred to the WIP account (capitalization of costs).
This posting is handled by the project functionality in general ledger.
- The DOP parts which are issued
to the shop order will be posted from the inventory account to the job cost
account at standard cost. Second, the cost of the DOP parts will be
automatically transferred to the WIP account (capitalization of costs). This
posting is handled by the project functionality in general ledger. Third, the Automatic Posting Rule (APR) will then transfer the inventory transaction to the job inventory account.
- Refinement costs will
be posted to the job cost account when reported (shop order transactions). The
counter-postings in the example are posted as “Internally distributed cost”
since they depend on the user setup and they are of no relevance to this
example. Next, the refinement costs
will automatically be transferred to the WIP account (capitalization of costs).
This posting is handled by the project functionality in general ledger.
- The shop order is closed. This
receipt results in an inventory transaction at standard cost, i.e.,
a project cost
credit of the full cost of the shop order and variances which are posted to
different accounts depending on which cost buckets have been used on the shop
order. In the example, we have used labor variance and general OH variance.
These postings are controlled by a new functionality in the shop order and new
control types or posting types. Next, the general job cost credit and
the variance postings will be automatically transferred to the WIP account
(capitalization of costs). These postings are handled by the project
functionality in general ledger. Third, the Automatic Posting Rule (APR) will then transfer the inventory transaction to the job inventory.
- The part on the customer order
line is shipped. This will result in a posting from Inventory to cost of sales
at standard cost for the parts shipped, and then the Automatic Posting Rule (APR) will then transfer the inventory transaction to Project Inventory.
Next, the standard cost for the parts
shipped will be automatically posted to the WIP account (capitalization of
costs). This posting is handled by the project functionality in general ledger.
- The customer order is invoiced
and the job is closed. The accumulated cost will then be posted to the specified
cost of sales account for closing (defined on the Job in general ledger via the
Job template). This reversal will be handled by the project functionality in
general ledger.
General
The aim of setting up the application following this
scenario is basically the same as that
of scenario 2, except that any purchase of material
in this scenario will be treated as cost at delivery.
Furthermore, there is no job inventory. Instead, all job-related inventory
transactions are posted to the WIP account via the general job cost account.
Like scenario 2, this setup could be useful when
there is a smaller number of jobs, and the jobs are generally a little larger both
in size and calendar time, and when there is a direct follow-up in general ledger
during the lifetime of the job.
Basic Setup of the Job Template
The job template should be set up so that the reversal
transactions at the closing of the job are posted to the account “Cost of
goods sold (Job).”
Posting Control
In order to obtain the ideas in this scenario, the
following steps are required in posting control:
- Inventory transactions for DOP articles should be posted to the
general job cost account. This can be obtained by using a control type on the
posting type M1. The control type to
be used is dependent on which attributes are
used in the part catalog. The recommendation is to use one of the control types
C5 to C9, or C32. Please note that the use of one of these control types require information
that
can be entered in the corresponding attribute in the part
catalog.
- WIP transactions should be posted to the general job cost account
instead of directly to the WIP account. This is done by using the control type
C56 on the posting type M40. Control type values can
either be “ISDOP” or “NOTDOP.”
A specific account for job-related cost of sales is
required. This will be the account used when a job is closed.
Automatic Posting Rule
There is no need for an automatic posting rule in this
scenario.
Balance and Project Analysis
The following will be possible to view
in project analysis
and balance analysis after each main step in the example. Only accounts which
have been affected by the step in question will be commented
on for the balance
analysis. On the other hand, project analysis is
always fully commented on since this should be a specification of the
WIP-account at any given point in time.
(Please note that this is only a brief overview of what can
be possibly analyzed in the general ledger and project analysis, and the only
intention is to give the reader an understanding of the effects of setting up the accounting this way).
After step 1
- Balance analysis will show an inventory value of 30 and a
price variance of 5. There are no job inventory values since only standard parts
have been purchased so far.
- Project analysis will show a project cost of 0 since no
job specific activities have taken place. The price variance only concerns
standard parts with no relevance to the specific job.
After step 2
- Balance analysis will show a WIP of 26.
- Project analysis will show a general job cost of 20 and a
price variance of 6.
After step 3
- Balance analysis will show an inventory value of 20 after
issuance of standard parts at a value of 10. WIP will be at 36.
- Project analysis will show a general job cost of 30 and a
price variance of 6, thus totaling 36.
After step 4
- Balance analysis will show no changes from step 3.
- Project analysis will show no changes from step 3.
After step 5
- Balance analysis will show WIP of 56 after adding
refinement costs of a total of 20.
- Project analysis will show general job cost of 50 and a
price variance of 6, thus totaling 56.
After step 6
- Balance analysis will show no changes from step 5.
- Project analysis will show a general job cost of 45 a
price variance of 6, labor variance of 3, and general OH variance of 2, thus totaling
56.
After step 7
- Balance analysis will show no changes from step 5.
- Project analysis will show a price variance of 6, labor
variance of 3, general OH variance of 2, and a standard cost of goods sold of 45, thus totaling 56.
After step 8
- Balance analysis will show a cost of goods sold (Job) of
56.
- Project analysis will show exactly the same as that after step
7 since the closing of the job in itself does not incur any costs to the job. Specifically,
there is a price variance of 6, labor variance of 3, general OH variance of 2, and a
standard cost of goods sold of 45, thus totaling
56.
Transactions
The following transactions will be generated at each step
in the example to achieve the above analysis.
- The purchase of standard parts will be posted at arrival to the inventory
account at standard cost; the price variance will be
posted to the price variance account at the matching of the invoice.
- The purchase of DOP parts (job
specific parts) will be posted at arrival to the general job cob cost account at
standard cost. Next, the cost of the DOP parts will
automatically be transferred to the WIP account (capitalization of costs). This
posting is handled by the project functionality in general ledger. Third, the price variance will be
posted to the price variance account at the matching of the invoice. Fourth, the price variance will be automatically transferred to the WIP account (capitalization of costs). This
posting is handled by the project functionality in general ledger.
- Standard parts which are issued
to the shop order will be posted from the inventory account to the job cost
account at standard cost. Next, the cost of the standard parts
will be automatically transferred to the WIP account (capitalization of costs).
This posting is handled by the project functionality in general ledger.
- The DOP parts which are issued
to the shop order will be posted from the general job cob cost account to the
job cost account at standard cost. Next, the cost of the DOP parts will be automatically transferred to the WIP account (capitalization of costs). This
posting is handled by the project functionality in general ledger.
Note: Since the cost of the DOP part was already
transferred to the WIP account in transactions 2b & 2c, the effect of
the transactions generated at issue, i.e. 4a, must be offset, and this is done by
transaction 4d.
- Refinement costs will
be posted to the job cost account when reported (shop order transactions). The
counter-postings in the example are posted as “Internally distributed cost”
since they depend on the user setup and they are of no relevance to this
example. Next, the refinement costs
will automatically be transferred to the WIP account (capitalization of costs).
This posting is handled by the project functionality in general ledger.
- The shop order is closed. This
receipt results in a general job cost transaction (inventory transaction) at
standard cost, i.e., a project cost credit of the full cost of the shop order and
variances which are posted to different accounts depending on which cost buckets
have been used on the shop order. In the example, we have used labor variance
and general OH variance. These postings are controlled by a new functionality in
the shop order and new control types or posting types. Next, the general job cost credit and
the variance postings will be automatically transferred to the WIP account
(capitalization of costs). These postings are handled by the project
functionality in general ledger.
Note: Since
we cannot get rid of the inventory transaction and the project cost credit, we
post these to the same account. The project functionality in general ledger will automatically transfer these transactions to the WIP account even though the
total effect of transaction 6a is 0.
- The part on the customer order
line is shipped. This will result in a posting from general job cost account to
cost of sales at standard cost for the parts shipped. Second, the standard cost for the parts
shipped will be automatically posted to the WIP account (capitalization of
costs). This posting is handled by the project functionality in general ledger.
Third, the cost of the DOP parts will be automatically transferred to the WIP account (capitalization of costs). This
posting is handled by the project functionality in general ledger.
Note: Since
the objective of this scenario is to keep all job costs in the WIP account throughout
the whole lifetime of the job, the ordinary transaction 7a
must be offset, i.e., when the customer
order is shipped, which is done by the third and fourth parts of this
transaction.
- The customer order is invoiced
and the job is closed. The accumulated cost will then be posted to the specified
cost of sales account for closing (defined on the Job in general ledger via the
Job template). This reversal will be handled by the project functionality in
general ledger 8a)
General
The objective of setting up the application following this
scenario is basically the same as that in scenario 3. The difference is that if
you cannot separate your M1 transactions using a control type as you have to use
something else. The solution to this is to use the automatic posting rule
functionality and to transfer all inventory transactions from ordinary inventory
to the WIP account. This transfer should however be done via the general job
cost account in order to catch the cost in project analysis. Please note that
this setup generates a considerable
amount of extra transactions, thus it is highly
recommended to use the setup in scenario 3.
The benefits of this setup is the same as that of scenario 3.
Basic Setup of the Job Template
The job template should be set up
such that the reversal
transactions at the closing of the job are posted to the account “Cost of
goods sold (Job).”
Posting Control
In order to obtain the ideas in this scenario, the
following is required in posting control:
WIP transactions should be posted to the general job cost account
instead of directly to the WIP account. This is done by using the control type
C56 on the posting type M40. Control type values can
either be “ISDOP” or “NOTDOP”.
Automatic Posting Rule
There should be an automatic posting rule that
transfers any inventory transaction related to a job from the ordinary inventory account
to the general job cost account. Please refer to Full Follow Up of All Job
Costs Scenarios 3 & 4 for details on how
this rule is set up.
Balance and Project Analysis
The account balances and project balances will be exactly
the same as in the previous scenario. Therefore, no comments are made here.
Please refer to the balances in scenario 3.
Transactions
The transactions will not be the same as that
in the previous scenario on all accounts, thus all transactions are described in the following.
- The purchase of standard parts will be posted at arrival to the inventory
account at standard cost, and then the price variance will be
posted to the price variance account at the matching of the invoice.
- The purchase of DOP parts (job
specific parts) will be posted at arrival to the inventory account at standard
cost. Second, the Automatic Posting Rule (APR) will then transfer the inventory transaction to the general job cob cost
account. Third, the cost of the DOP parts will be
automatically transferred to the WIP account (capitalization of costs). This
posting is handled by the project functionality in general ledger. Fourth, the price variance will be
posted to the price variance account at the matching of the invoice. Fifth, the price variance will be
automatically transferred to the WIP account (capitalization of costs). This
posting is handled by the project functionality in general ledger.
- Standard parts which are issued
to the shop order will be posted from the inventory account to the job cost
account at standard cost, and then the cost of the standard parts
will be
automatically transferred to the WIP account (capitalization of costs).
This posting is handled by the project functionality in general ledger.
- The DOP parts which are issued
to the shop order will be posted from the inventory account to the job cost
account at standard cost. Second, the cost of the DOP parts will be
automatically transferred to the WIP account (capitalization of costs). This
posting is handled by the project functionality in general ledger. Third, the Automatic Posting Rule (APR) will then transfer the inventory transaction to the general job cost
account. Fourth, the cost of the DOP parts will be
automatically transferred to the WIP account (capitalization of costs). This
posting is handled by the project functionality in general ledger.
Note: Since the cost of the DOP part was already
transferred to the WIP account in the 2nd and 3rd parts of transaction 2, the effect of
the transactions generated at issues 4a and
4b must be offset, and this is done
by the 3rd and 4th parts of this transaction.
- Refinement costs will
be posted to the job cost account when reported (shop order transactions).
Second, the
counter-postings in the example are posted as “Internally distributed cost”
since they depend on the user setup and they are of no relevance to this
example. Third, the refinement costs
will automatically be transferred to the WIP account (capitalization of costs).
This posting is handled by the project functionality in general ledger.
- The shop order is closed. This
receipt results in an inventory transaction at standard cost, i.e.,
a project cost
credit of the full cost of the shop order and variances which are posted to
different accounts depending on which cost buckets have been used on the shop
order. In the example, we have used labor variance and general OH variance.
These postings are controlled by a new functionality in the shop order and new
control types or posting types. Second, the general job cost credit and
the variance postings will be
automatically transferred to the WIP account
(capitalization of costs). These postings are handled by the project
functionality in general ledger. Third, the Automatic Posting Rule (APR) will then transfer the inventory transaction to the general job cost
account. Fourth, the cost of the DOP parts will be
automatically transferred to the WIP account (capitalization of costs). This
posting is handled by the project functionality in general ledger.
Note: Since
the objective of this scenario is to keep all job costs in the WIP account throughout
the whole lifetime of the job, the ordinary transaction 6a must be offset,
i.e., when a shop order
is closed, which is done by the 3rd and 4th parts of this transaction.
- The part on the customer order
line is shipped, resulting in a posting from Inventory to cost of sales
at standard cost for the parts shipped. Second, the Automatic Posting Rule (APR) will then transfer the inventory transaction to the general job cost
account. Third, the standard cost for the parts
shipped will automatically be posted to the WIP account (capitalization of
costs). This posting is handled by the project functionality in general ledger.
Fourth, the cost of the DOP parts will be
automatically transferred to the WIP account (capitalization of costs). This
posting is handled by the project functionality in general ledger.
Note: Since
the objective of this scenario is to keep all job costs in the WIP account throughout
the whole lifetime of the job, the ordinary transaction in the 1st part must be offset,
i.e., when the customer
order is shipped, which is done by transactions in the 2nd, 3rd and 4th parts of
this transaction.
- The customer order is invoiced
and the job is closed. The accumulated cost will then be posted to the specified
cost of sales account for closing (defined on the Job in general ledger via the
Job template). This reversal will be handled by the project functionality in
general ledger.