You can use Production Accounting to obtain an overview of the cost of goods manufactured for the products, so that you can control the production costs in the production process.
Production Accounting is divided into the following components:
- Product Cost by Order
- Product Cost by Period
Product Cost by Order is recommended for lot-based production. Typical applications are product cost by order in order-related production, batch-based process manufacturing, and discrete manufacturing. Production takes place on the basis of manufacturing orders, which also represent the cost object. Production and the cost analysis of a certain quantity (production lot size) is the main focus.
In this way, Product Cost by Order enables cost analysis at the level of manufacturing orders.
The Bike Company creates the bicycle wire set in discrete manufacturing and analyzes the costs according to product cost by order.
Product Cost by Period is used for regular periodic cost control of products when products with high product stability that are manufactured in the same way over longer periods of time are to be manufactured. A typical use case is make-to-stock production in repetitive manufacturing.
Product Cost by Period enables cost analysis at product level by period and not by lot.
In Product Cost by Period, the product cost collector is used as the cost object. It enables you to collect costs at product level regardless of the production type. Regardless of whether you are using order-related production, process manufacturing, or repetitive manufacturing, you can update the costs for producing a product on a product cost collector in the long term and analyze it periodically.
The Bike Company creates the semi-finished product bike handlebars using repetitive manufacturing and analyzes the costs using product cost by period.
Joint production is a special scenario in Product Cost by Order. In this case, the production of several products (so-called co-products) takes place in one production run. The system creates a separate order item in the production order for each co-product.
The paint production of the Bike Company takes place as part of a joint production.
In sales-order-related production, products are produced on a customer-specific basis according to specific specifications with reference to a sales order item. All materials are also called make-to-order materials or individual requirements materials. Order processing is largely customer-specific. Make to Order is usually organized as individual or small series production.
In the case of the Bike Company, additional devices for the bike, such as for example, Sensors (proximity and GPS) as well as an alarm system, and so on, created as part of sales-order-related production.
In the following, we focus on Product Cost by Period based on the repetitive manufacturing of the semi-finished product Bicycle Handlebar. Here we will use the backflush procedure in the form that the material components are automatically confirmed at the goods receipt confirmation or at the reporting point confirmation.