Manufacturing Cost Control Module

Rootstock Manufacturing Cost Control complements and expands Netsuite item cost
capabilities in many ways.  Rootstock not only maintains the single Netsuite element of cost but
also provides detail so that one could also track this single total cost unit with as many as eight
sub components of cost.

These cost elements can be maintained using either a standard cost method or an average
actual cost method. This method is set at the ‘division level’ which means that in a multi division
installation, a company could have ‘standard costs’ in one division and ‘average actual costs’ in
another division.  Another item of note is that in a standard cost system these costs are
maintained at an item level and in an weighted average cost system these costs are ‘averaged’
at an item-project level.

Cost Elements

Up to 8 cost elements can be tracked in inventory, work in process and finished goods. The
eight cost elements are as follows:

1.

Material Cost: This is the purchased cost. In a standard cost environment, this is set as the
standard material unit cost on the cost master file. In an average cost situation, this is a rolling
weighted average whereby the purchase receipt’s purchase price will be ‘averaged’ with the
inventory’s current material cost.

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2.

Material Overhead Cost: This is the material burden which is calculated using a “Material
Overhead Rate’ designated at the division level and applied to the material cost (or subcontract
material cost) at the time of purchase order receipt. This rate is used in either a standard or
actual cost environment.

3.

Direct Labor Cost: In an actual cost environment, this is the labor cost associated with the
hours charged multiplied by a labor grade rate associated with the employee that is booking the
labor at a work order operation. In a standard cost environment, this is derived in a ‘standard
cost’ calculation accumulating all of the item’s routing operations’ hour standards multiplied by a
standard rate for the labor grade expected to perform the operation.

4.

Direct Labor Overhead Cost: There is a Direct Labor Overhead rate associated with each
Department and the Department is noted on each operation of the routing. In an actual cost
environment, Direct Labor Costs extended by the Direct Labor Overhead Rate provides this
Direct Labor Overhead cost. In a standard cost environment, when calculating the cost standard
using the standard routing, this same rate is applied to the standard direct labor cost at each
operation.

5.

Fringe Labor Overhead Cost: Similar to a Direct Labor Overhead rate associated with each
Department there is also a Fringe Labor Overhead Rate. Given the rising cost of Fringe
(Medical and taxes for example) it is often desirable to separate this cost out from Direct Labor
Overhead. This is calculated in the same manner as the Direct Labor Overhead.

6.

Machine Overhead Cost: There is a Machine Overhead rate associated with each Machine
and the Machine can be specified on each operation of the routing where appropriate.  In an
actual cost environment, actual Machine Hours are  extended by the Machine Overhead Rate
providing this Machine Overhead cost. In a standard cost environment, when calculating the
cost standard using the standard routing, this same rate is applied to the standard machine
hours at each operation.

7.

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Subcontract Material Cost: This is the value added cost of the Vendor for their
manufacturing/assembly work associated with a subcontract purchase order.  . In a standard
cost environment, this is set as the standard subcontract material unit cost on the cost master
file. In an average cost situation, this is a rolling weighted average whereby the purchase
receipt’s purchase price will be ‘averaged’ with the inventory’s current subcontract material cost.

8.

Subcontract Labor Cost: This is the value added cost of the Vendor for their
manufacturing/assembly work associated with an ‘outside operation’  of a work order.  In a
standard cost environment, this is set as the standard subcontract labor unit cost on the cost
master file. In an average cost situation, this is a rolling weighted average whereby the
purchase receipt’s purchase price will be ‘averaged’ with the work orders’ subcontract labor
cost.

Cost Rollups and Standards Revaluation in a Standard Cost

Standard costs for purchased and subcontract items are maintained  by the user on the item
standard cost master file. The standard costs for Labor and overhead are  calculated by
ROOTSTOCK using the bill of materials and routing for each item using the cost rollup process. 

Variance Calculations in a Standard Cost Environment

In a standard cost environment, the costs on the item (or item-project) master files are
maintained at standard. Standard cost variance calculations are done as follows on the
following transactions:

1.

Purchase Receipt:  The difference between the purchase order price and the standard
material cost (or subcontract material cost) will be calculated (and extended by the quantity) and
will debit/credit a PPV (purchase price variance) account.

2.

Work Order Close:  The sum of  actual component material charges (as determined at work

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order issuance) and the sum of all labor and associated overhead, machine overhead, and
subcontract labor – at actual are maintained on the work order. At work order close the
difference between the work order receipts and scrap – at standard are compared to these
actual costs and there will be a debit/credit to a Work Order Variance WIP account as
appropriate.

3.

Standards Redefinition: When ever an item standard is redefined all stock inventory and all
WIP (work order) inventory is revalued at the new standard and a ‘standards variance
recalculation’ account is appropriately debited/credited.

Rootstock’s Manufacturing Accounts are a sub ledger of

Rootstock Manufacturing Cost Module maintains its own chart of manufacturing accounts which
are then individually mapped to the Netsuite General Ledger account. This permits the user to
capture costs at one level of detail in manufacturing (e.g. multiple variance accounts), and then
post these accounts to the same general ledger account. The format of the costs to be posted
to General Ledger is in the cumulative cost format and the 8 cost components (whether in a
standard or actual cost environment) are ‘unitized’ as one cost for General Ledger purposes.
 

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