Costing Method
Last updated
Last updated
Steps of Costing calculation under BOM
What are the marterials making the A product?, How much quantity of each material do a product needed to make?).
Each product can use from 1 -> 100 materials (Can be customized if the number of materials is more than 100). Materials can set up according to kg, pcs , metre, bottles ( depending on each type of product )
In this step, when setting up on smart book will create the registration section for norm of each product and create Excel file to import in cases where the company has a lot of the product code .
Check the figure below for details
For example: 1 product needs to use 4 main material and the norm of each type of material is detailed in kg.
FGCode | Material code | Norms/Quota kg |
NIBA-07-CT | 7W LED PCB | 0.570 |
NIBA-07-CT | LED E27 CAP | 0.758 |
NIBA-07-CT | LED BULB A60 HOUSING 7W | 0.852 |
NIBA-07-CT | LED DRIVER 7W | 0.570 |
In this step, input the data into the SB on the finished goods import voucher.
The software will create a separate section for importing unfinished goods and completion rate and set up the formula to converted from unfinished goods into equivalent finished goods.
Note: A product can have many completion rates. Because, it can be at the beginning, middle or ending stage of manufacturing process.
For example :
Code | Name | WIP qty (a) | Ratio (b) | FG equivalent (c =a*b) |
DUOI DEN | Plastic lamp holder (NLH100) | 250 | 65% | 162.50 |
DUOI DEN | Plastic lamp holder (NLH100) | 150 | 80% | 120.00 |
DUOI DEN | Plastic lamp holder (NLH100) | 6,816 | 50% | 3,408.00 |
DUOI DEN | Plastic lamp holder (NLH100) | 538 | 70% | 376.60 |
DUOI DEN | Plastic lamp holder (NLH100) | 9,346 | 35% | 3,271.10 |
After calculating the equivalent products with different unfinished rates, the software will sum up each of product code which converted to the equivalent product. As in the above example, after calculating WIP with different percentages, the total of equivalent FG of this code will be shown as follows:
Code | Name | WIP qty a | Ratio | FG equivalent |
DUOI DEN | Plastic lamp holder (NLH100) | 17,100.00 |
| 7,338.20 |
Each WIP code is assembled into each line and show the total of final equivalent converted FG, because the result of this step will be used to calculate the value of WIP in Step 9.
There is always a logic in the manufacturing as follows :
WIP at the beginning of the period + the product manufacturing during the period -> manufacturing -> FG + WIP at the ending of the period.
Therefore , the formula of the manufacturing process:
WIP at the beginning of the period + the product manufacturing during the period = FG + WIP at the ending of the period.
Then, knowing the 3 factors of this equation will calculate the remaining factors. And here, 3 values are always defined as:
1. Quantity of WIP at the beginning the period (from the previous the period forward),
2. FG manufactured during the period and
3. WIP at the end of the period (provided by the customer's inventory)
🡺 Products manufactured during the period = FG + WIP at the ending of the period – WIP at the beginning of the period
On the SB will be setup to calculate the amount of manufactured products
At this step, SB will setup the formula to calculate the number of material according to norms (already set up in Step 1) for the products manufacturing during the period ( already calculated in Step 4)
FGCode | RMCode | Norms kg (a) | Qty products (b) | Material used by BOM (c)=(a)*(b) |
NIBA-07-CT | 7W LED PCB | 0.570 | 58,315 | 33.230 |
NIBA-07-CT | LED E27 CAP | 0.758 | 58,315 | 44.225 |
NIBA-07-CT | LED BULB A60 HOUSING 7W | 0.852 | 58,315 | 49,697 |
NIBA-07-CT | LED DRIVER 7W | 0.570 | 58,315 | 33.230 |
NIBA-07-WT | 7W LED PCB | 1,000 yen | 26,366 | 26,366 |
NIBA-07-WT | LED E27 CAP | 1,000 yen | 26,366 | 26,366 |
NIBA-07-WT | LED BULB A60 HOUSING 7W | 1,000 yen | 26,366 | 26,366 |
NIBA-07-WT | LED DRIVER 7W | 1,000 yen | 26,366 | 26,366 |
Note: A product will use many materials for manufacturing so the formula will set up to fully calculate all the materials codes which are used to manufacture a finished goods code.
This step is quite similar to the step of setting up materials for each specific product code, because this data is the actual output materials of customer.
SB should have an import form because with many finished goods, it will not be possible to input manually.
RMCode | Output material in practice |
7W LED PCB | 34,918.19 |
LED E27 CAP | 45,909.50 |
LED BULB A60 HOUSING 7W | 51,385.13 |
After obtaining the quantity of output material in actual and output warehouse according to the norm. This step needs to determine the difference in the quantity of materials between the actual and norm.
In fact, there is always a difference between the actual quantity of output material and the material built on the norm.
In terms of accounting regulations: in case the output materials in actual > the output materials according to BOM. The difference will be recorded in the cost of goods sold
For example: Actual output materials is 100, norm is 75. The difference of 25 will be recorded directly in cost of goods sold (Account No. 632)
The accouting entry on SB when output materials for this case as follows:
1 / The output materials according to norms:
Debit 621 / Credit 152: 100
2 / Materials that SB calculate according to BOM: 75
3 / Transfer material to calculate the costing
Debit 154: 75
Debit 632: 25
Credit 621: 100
In addition, in case of the output material in actual is smaller than the material norm, in this case the accountant can go back to step 1 to adjust the material norm for each product.
Therefore, SB needs to set up 2 formulas to handle these 2 cases. Because there will be output material > material norm and output material < material norm in some material codes.
🡺Check the excel file for details
After completing step 7, the amount of materials to calculate cost of goods manufactured will be the actual or norm materials depending on each materials code.
This step will allocate the labor cost and overheads cost to each product according to the cost of material. The labor cost and overheads cost are collected and uploaded in the costing section as the table below:
Note: the formula to calculate unit cost for each product code ( final column_unit cost )
When calculating the unit cost for 1 product, it will average for the whole WIP at the beginning of the period.
The reason: the WIP at the beginning of the period is still manufacture this the period. Averaging will make the unit cost of the product less fluctuated.
When setting up on SB, the IT team should note this formula.
The value of WIP at the ending of the period is calculated according to the formula:
The equivalent FG * unit cost
The equivalent FG are determined at step 3, the unit cost is determined at step 9
At this step, the manufacturing equilibrium equation is used to determine the value of finished goods input warehouse during the period .
The value of FG input during the period = Value of WIP at the beginning of the period + incurred manufacturing costs during the period - Value WIP at the ending of the period
After calculating the value of input warehouse product-> determining the unit cost of products = total value of input product / total quantity of input finished products (determined at step 2)
Steps of Costing calculation under Simple method
This is the simplest method of costing calculation methods, and currently very few businesses use this method.
In this step , just input the data into the SB on the FG warehouse receipt
The software will create a separate section for importing WIP and completion rate. At the same time, set up the formula to converted from WIP into equivalent FG.
Note: A product can have many completion rates. Because, it can be at the beginning, middle or ending stage of manufacturing process.
For example:
Code | Name | WIP qty (a) | Ratio (b) | FG equivalent (c =a*b) |
DUOI DEN | Plastic lamp holder (NLH100) | 250 | 65% | 162.50 |
DUOI DEN | Plastic lamp holder (NLH100) | 150 | 80% | 120.00 |
DUOI DEN | Plastic lamp holder (NLH100) | 6,816 | 50% | 3,408.00 |
DUOI DEN | Plastic lamp holder (NLH100) | 538 | 70% | 376.60 |
DUOI DEN | Plastic lamp holder (NLH100) | 9,346 | 35% | 3,271.10 |
After calculating the equivalent products with different completion rates, the software will sum up each of product code which converted to the equivalent product. As in the above example, after calculating WIP with different percentages, the total of equivalent FG of this code will be shown as follows :
Code | Name | WIP qty a | Ratio | FG equivalent |
DUOI DEN | Plastic lamp holder (NLH100) | 17,100.00 |
| 7,338.20 |
Each WIP code is assembled into each line and show the total of final equivalent converted product, because the result of this step will use to calculate the value of WIP in next step.
There is always a logic in the manufacturing as follows :
WIP at the beginning of the period + the product manufacturing during the period -> manufacturing -> FG + WIP at the ending of the period.
Therefore , the formula of the manufacturing process:
WIP at the beginning of the period + the product manufacturing during the period = FG + WIP at the ending of the period.
Therefore, knowing the 3 factors of this equation will calculate the remaining factors. And 3 values are always defined as:
1. Quantity of WIP at the beginning of the period (from the previous the period forward),
2. FG manufactured during the period, and
3. WIP at the ending of the period (provided by the customer's inventory)
🡺 Products manufactured during the period = FG + WIP at the ending of the period – WIP at the beginning of the period
On the SB will be setup to calculate the amount of these products
This step is the allocation of direct material costs, labor costs and manufacturing overhead costs to each product according to the total of products which manufactured.
This step is simply taking the total expenses divided the total product and multiplied the number of products of each type.
The value of WIP at the ending of the period is calculated according to the formula:
The equivalent FG * unit cost
The equivalent FG are determined at step 2, the unit cost is determined at step 4
At this step, the manufacturing equilibrium equation is used to determine the value of FG input during the period .
The value of FG input during the period = Value of WIP at the beginning of the period + incurred manufacturing costs during the period – Value of WIP at the ending of the period
After calculating the value of input product-> determining the unit cost of products = total value of input product / total quantity of input finished products (determined at step 1 )
Steps of Costing calculation under Coefficient Method
The coefficient method will be applied to enterprises that is only manufacturing of identical products, only size different . For example: the enterprise manufactures glass of bottles and jars. There are many sizes such as 1litle (1l), 0.5 litle (0.5l), 250ml…....
At that time, it is necessary to choose a product as a standard product to convert other products. For example, in the above case, a glass bottle with size 1l will be selected as the standard product.
At this step, SB needs to set up an initial product coefficient declaration table for users to declare on the software. Should have the form.
At this step, data is only entered into SB through finished goods import vouchers
The software will create a separate section related to enter unfinished goods and completion rate. At the same time, It sets up the formula to convert from unfinished goods into equivalent finished goods.
Noted: A product can have many unfinished ratio. Because, it can be at the beginning, middle or ending of manufacturing process.
For example :
Code | Name | WIP qty a | Ratio _b | FG equivalent _c =a*b |
DUOI DEN | Plastic lamp holder (NLH100) | 250 | 65% | 162.50 |
DUOI DEN | Plastic lamp holder (NLH100) | 150 | 80% | 120.00 |
DUOI DEN | Plastic lamp holder (NLH100) | 6,816 | 50% | 3,408.00 |
DUOI DEN | Plastic lamp holder (NLH100) | 538 | 70% | 376.60 |
DUOI DEN | Plastic lamp holder (NLH100) | 9,346 | 35% | 3,271.10 |
After calculating the equivalent products with different unfinished rates, the software will collect each of product code which is converted to the equivalent product. As in the above example, after calculating unfinished goods with different percentages, the total of equivalent finished goods of this code will be collected as follows:
Code |
| Name | WIP qty a | Ratio | FG equivalent |
DUOI DEN |
| Plastic lamp holder (NLH100) | 17,100.00 |
| 7,338.20 |
|
|
|
|
|
|
Each unfinished good code is needed collection into each line and show the total of final equivalent converted product, because the result of this part will be used to calculated the value of unfinished goods in next Step.
There is always a logic in the manufacturing as follows :
Unfinished goods at beginning period + the products are manufactured during the period -> manufacturing -> finished goods + unfinished goods at ending period.
Therefore , the formula of the manufacturing process:
Unfinished goods at beginning period + the product are manufactured during the period = finished goods + unfinished goods at ending period.
Then, If knowing the 3 factors of this equation, it can be calculated the remaining factors. And, there are some value always defined as:
1. Quantity of unfinished goods at beginning period (from the previous period forward),
2. Finished goods manufactured during the period and
3. Unfinished goods at the end of the period (provided by the customer's inventory)
🡺 Products manufactured during the period = Finished goods + unfinished goods at ending period – unfinished goods at beginning period
On the SB, It will be setup to calculate the quantity of this products manufactured.
After determining the number of products manufactured in the period according to the above formula, it is necessary to convert these products into standard products.
Using the standard product ratio established in step 1 multiplies the number of products manufactured during the period in order to convert to the standard product
When calculation costing for the standard product, It is noted that in this case, the value of unfinished goods at the beginning of the period as well as the quantity of unfinished goods at the beginning of the period will be added to calculate the average unit price for the standard product.
This step is simply as below:
(the value of unfinished goods at the beginning of the period + incurred expenses in the period)
/ ( the number of products in the period + the number of unfinished goods at the beginning of the period)
Use the costing of standard product calculated in step 6 and the standard product ratio converted in step 1.
SB will set up the costing re-calculation table for each type of product, as the table below :
The value of unfinished goods at the end of the period is calculated according to the formula:
The equivalent finished goods * unit cost
The equivalent finished goods are determined at step 3, the unit cost is determined at step 6
At this step, the manufacturing equilibrium equation is used to determine the value of finished goods input warehouse during the period .
The value of finished goods input warehouse during the period = Value of unfinished goods at beginning period + incurred manufacturing costs during the period - Value unfinished goods at the end of the period
After calculating the value of input warehouse product-> determining the unit cost of products = total value of input product / total quantity of input finished products (determined at step 2)
Steps of Costing calculation under Selling price Method
In this step, declaring the selling price for each finished good code, same as declaring the coefficient. SB should have an excel file to make it import easily for users.
At this step, data is only entered into SB through the finished good import vouchers
The software will create a separate section related to entering work-in-process materials and completion rate. At the same time, It sets up the formula to convert from unfinished goods into equivalent finished goods.
Noted: A product can have many completion rates. Because, it can be at the beginning, middle or ending stage of manufacturing process.
For example :
Code | Name | WIP qty a | Ratio _b | FG equivalent _c =a*b |
DUOI DEN | Plastic lamp holder (NLH100) | 250 | 65% | 162.50 |
DUOI DEN | Plastic lamp holder (NLH100) | 150 | 80% | 120.00 |
DUOI DEN | Plastic lamp holder (NLH100) | 6,816 | 50% | 3,408.00 |
DUOI DEN | Plastic lamp holder (NLH100) | 538 | 70% | 376.60 |
DUOI DEN | Plastic lamp holder (NLH100) | 9,346 | 35% | 3,271.10 |
After calculating the equivalent products with different completion rates, the software will sum up each of product code which converted to the equivalent product. As in the above example, after calculating work-in-process with different percentages, the total of equivalent finished goods of this code will be shown as follows:
Code | Name | WIP qty a | Ratio | FG equivalent |
DUOI DEN | Plastic lamp holder (NLH100) | 17,100.00 |
| 7,338.20 |
Each work-in-process code is assembled into each line and show the total of final equivalent converted product, because the result of this part will be used to calculate the value of unfinished goods in next Step.
There is always a logic in the manufacturing as follows :
Unfinished goods at the beginning of the period + the product manufactured during the period -> manufacturing -> finished goods + unfinished goods at the ending of the period.
Therefore , the formula of the manufacturing process:
Unfinished goods at the beginning of the period + the product manufacturing during the period = finished goods + unfinished goods at the ending of the period.
Then, If knowing three factors of this equation It can be calculated the remaining factors. And here, there are some value always defined as below:
1. Quantity of unfinished goods at the beginning of the period (from the previous period forward),
2. Finished goods manufactured during the period and
3. Unfinished goods at the end of the period (provided by the customer's inventory)
🡺 Products manufactured during the period = Finished goods + unfinished goods at the end of the period – unfinished goods at the beginning of the period
On the SB, It will be setup to calculate the quantity of this manufactured products
This step of allocating direct material costs, labor costs and manufacturing overhead costs to each product according to the selling price.
The value of unfinished goods at the end of period is calculated according to the formula:
The equivalent finished goods * unit cost
The equivalent finished goods are determined at step 3, the unit cost is determined at step 5
At this step, the manufacturing equilibrium equation is used to determine the value of finished goods input warehouse during the period .
The value of finished goods input warehouse during the period = Value of unfinished goods at the beginning of the period + incurred manufacturing costs during the period – Value of unfinished goods at the end of the period
After calculating the value of input warehouse product-> determining the unit cost of products = total value of input product / total quantity of input finished products (determined at step 2)
Setup costing by CostCenter, by Phased and by Group Product
From Main Menu choose General Setting Information, CostID:
CostCenter ID
CostCenter Name
Cost Group: 621 : Raw material, 622: Labour cost and 627: Overhead cost.
Setup allocate expense:
PhaseID: set up expense for each phase. Phased should be 1,2,3,etc… or All (All of phase)
CostMethodID: is method allocate expense for each group product, product
Option 1 : allocate direct material
Option 2 : allocate by rate
Option 3 : allocate by customize
Firstly, expense after summary in period will be allocated for each phased.
AllocationPhaseID: Default is option 1 (use for all CostCenterID)
PhaseID: phase No.
Rate: rate for each PhaseID
FromDate -ToDate: Time to apply
Applied when allocate expense by quantity multiplication rate (CostMethodID = 2, AllocationMethodID = 1).
Firstly, expense after summary will be allocate for each phase, second will be allocate for each group.
Setup:
GroupID:
Rate: If evenly distributed by quantity should be choose 1 for all GroupID
PhaseID
FromDate -ToDate: Time to apply
Applied when allocate expense by quantity multiplication rate (CostMethodID = 2, AllocationMethodID = 1). Firstly, expense after summary will be allocate for each phase, second will be allocate for each group, third will be allocate for each product
Setup:
ProductID
Rate: rate by Coefficient, Selling price or Simple method.
PhaseID
FromDate -ToDate: Time to apply
Input quantity Work in progress closing balance and rate equivalent (if any)
From Inventory config menu choose Calculator qty 154 for each product:
From date – To date: Time to apply
ProductID: Product ID work in progress closing balance
154Qty: Quantity of work in progress closing balance
621Rate, 622Rate, 627Rate: rate equivalent for each group expense 621,622,627
154EndAmt: Amount of Work in progress will be automatic update after costing finish.
621EndAmt, 622EndAmt, 627EndAmt: Amount of each group expense 621,622,627 also automatic update after costing finish.
ProductID: Finish good ID
FGQty: Quantity of Finish Goods
154Qty: Quantity of work in progress closing balance (input before costing)
621Qty, 622Qty, 627Qty (quantity working in progress) = 154Qty multiplication with 621Rate, 622Rate, 627Rate
FromDate – Todate: Time apply
GroupID
PhaseID
Base on quantity finishgoods from step 1.1, we can calculate total quantity finishgoods in period for each group
GroupID: FinishGoods group
621TotGoodQty, 622TotGoodQty, 627TotGoodQty = FGQty (quantity finishgoods input) + 621Qty, 622Qty, 627Qty (quantity working in progress)
Fromdate – Todate: Time apply
PhaseID
When user input 621,622,627 must choose Costcenter.
Expense will be input from Inventory and general ledger
CostCenterID:
CostMethodID, phaseID, AllocationMethoID: get from config allocation expense when user setup CostCenter.
Note: AllocationMethoID: Method allocation when CostMethodID = 2.
Amt: Total expense amount in period
ProductID: Direct expense for Product when CostMethodID = 1
PhaseID: Choose Phase number for next period
Step 3, 4 using for allocate Costcenter which config follow rate quantity and coefficient : CostMethodID =2, AllocationMethodID = 1. For Costcenter is specific identification (CostMethodID =1) and expense allocate by rawmaterial (AllocationMethodID =1) will be calculate in step 5.
Expense will be summary from step 2 for config CostMethodID =2 and AllocationMethodID =1. If PhasedID is number total expense will be allocate all for this phased, if PhasedID is all, expense = total expense * rate allocate by phased (Costing Rate Allocate Group)
Expense summary by Coscenter will be allocate for each product group in phased by quantity and rate. Result in column GroupAmt
CostGroupID: Group expense 621, 622, 627
CostCenterID:
GroupID: Product group
IsCosting: expense will be allocate for product group or not. 1 is yes 0 is no.
TotGoodQty: quantity product finish in period by group product from step 1.2
CostGroupID = 621 get data from 621TotGoodQty
CostGroupID = 622 get data from 622TotGoodQty
CostGroupID = 627 get data from 627TotGoodQty.
GroupRate: Costing rate allocation group
GroupQty: TotGoodQty * GroupRate for each CostcenterID
CostCenterAmt: total expense summary by CostcenterID of Phased
CostCenterRate: rate expense for product group: CostCenterRate = (TotGoodQty * GroupRate) / GroupQty
GroupAmt: is total expense allocate for each product group, for each costcenter . GroupAmt = CostCenterAmt * CostCenterRate. Can be use for step 4.
PhaseID: phased for costing
AllocationMethodID: Allocate method get from config. Always is 1
From total expense for each product group in step 3, we can allocate expense for each product. Result will available in column ProductAmt
CostCenterID
GroupID: Product group
GroupAmt: Total expense for each product group.
ProductID: Product in period
TotGoodQty: total quantity product in period = quantity input (FGQty) + quantity working in progress (621Qty, 622Qty, 627Qty)
ProductRate: rate allocate for each product
IsCosting: allocate for this product or not? Default is 1
TotProductAmt: TotGoodQty * ProductRate for each product group.
Rate: rate allocate expense for each product = (TotGoodQty * ProductRate) / TotProductAmt
ProductAmt: Expense allocate for each product = GroupAmt * Rate
Total expense for each product including working progress opening balance , expense in period. Exepense in period including: Expense indentification , Expense allocate by raw material , Product Amount from Step 4.
Costing product = Total expense / Total quantity in period.
ProductID
Qty: Quantity finish goods from step 1.1
BeginAmt: Working progress opening balance get from last period.
Amt621_ide, Amt622_ide, Amt627_ide: Expense identification in period by group 621,622,627. Get from step 2 for Costcenter have CostMethodID =1
Amt621, Amt622, Amt627: Expense in period get from step 4 for each group 621,622,627 and Expense allocate by raw material.
TotAmt: = BeginAmt (Summary expense working progress opening balance) + Amt621_ide + Amt622_ide + Amt627_ide + Amt621 + Amt622 + Amt627
UnitPrice: Costing of product = TotAmt / Qty
EndAmt: Working progress closing balance = UnitPrice * working progress quantity
After click Save:
Costing after caculate in Unitprice column will be update into all Finish Goods receipt entry.
Working progress closing balance will be update into working progress table.
ProductID:
ItemName: Product name
BegbalanceQty: quantity opening balance
BegBalanceAmt: Amount opening balance
InputQty: Quantity input in period
InputAmt: Amount input in period
PriceOut:
Need update expense in step 2 before calculate costing for next phased.
