Discovering Product Cost Analysis by Order in Lot-Based Production (Make-To-Stock Scenario)

In lot-based make-to-stock (MTS) production the controlling focus lies on a particular quantity (production lot size) that needs to be produced. For this, the production accounting method product cost by order is used. In product cost by order, you are producing based on manufacturing orders which are the cost objects.

Manufacturing orders comprise production orders as well as process orders. In discrete manufacturing production orders are used, while in process manufacturing process orders are used as the cost object. The respective manufacturing order is created to produce a particular quantity of a product. During production, the costs to produce this particular quantity are then collected in an event-based manner and analyzed on the manufacturing order. These costs may include material costs, costs from activity and overhead cost allocation. When the respective quantity has been produced the manufacturing order is completed.

In the following, the necessary master data for product cost by order in discrete production is presented.

You have already familiarized yourself with some of the necessary master data in the previous course on Product Cost Planning (see learning journey, Outlining Cost Estimate Options). For every finished or semi-finished product, you need to set up:

• bill of materials (BOM)
• routing
• work centers
• material master record

In addition, the cost object production order must be created with reference to the material, the order type and the quantity that shall be produced. In a nutshell, a production order determines the following:

• Which materials are used and when they are used
• Which operations and sub-operations are performed at which work center
• The dates these operations are carried out
• Which stock materials are required to carry out the operations
• Which materials and activities must be procured externally for the order
• The receivers to which the actual costs can be settled

In the production order, the settlement rule must specify settlement type FUL (Full settlement).

The mentioned master data is necessary if, for instance, bike framesets are produced in lot-based MTS production.

The process industry uses a master recipe instead of a BOM and a routing. This and further master data needs to be set up:

• master recipe
• resources
• material master record
• process order

A master recipe describes the production of materials in a production run. Amongst others, it specifies the following:

• Which resources are required
• Which operations are performed, and in what sequence
• The phases into which the operations are divided
• Which material components are required to execute the phase

Resources include the means of production and persons involved in a production process. The master record of each resource specifies a cost center. Resources are assigned to operations in a master recipe.

Moreover, a process order must be created with reference to a material, the process order type and the quantity that shall be produced. In the process order, the settlement rule must also specify settlement type FUL (Full settlement).

The mentioned master data is necessary if, for instance, paint is produced in batch-based process manufacturing in a MTS scenario.