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Making the same item at different factories
10-17-2014, 04:47 AM
Post: #1
Making the same item at different factories
Currently we have the need to make a product at 2 different factories (locations) but the costing is giving me headaches.
If I setup a BOM like
Parent A123
Child B987 Location A WorkCenter A Qty 1
Child B987 Locatoin B WorkCenter B Qty 1

My cost immediately doubles in the system for Parent A123. Then if I setup a work order at Location A it only pulls Location A Child (As expected) and my cost drops back down. If in between those steps I sell any product my COGS is wrong (doubled).

If I setup my BOM like
Parent A123
Child B987 Location A WorkCenter A Qty 1
I can Manufacture w/out a problem at Location A, but If I create/receive a w/O for Location B my cost changes to 0 because no BOM components exist at location B during the cost roll. When I close the W/O I should update the cost back to normal and take the variance (to offset the write off account during the cost change to 0). But during the time between these steps I can't ship material or it will have a COGS of 0.

Does anybody else have this problem and how are they solving it?
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10-17-2014, 12:30 PM
Post: #2
RE: Making the same item at different factories
The cost should not change in the system when you change a BOM?
It is only updated - when you release a work order - based on the BOM selected.
Or when a variance is taken on closing a WO - where weighted average cost is used. No change in cost if standard costing is used.

Phil Daintree
webERP Admin
Logic Works Ltd
http://www.logicworks.co.nz
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10-24-2014, 10:58 PM
Post: #3
RE: Making the same item at different factories
Phil,
Just changed a BOM in the system (Added a component). I did nothing else. Got this in my G/L inquiry. So cost IS changing when a BOM is changed.
Cost Update 100028 10/24/2014 4,539.45 F06UL0001 cost was 1.1100 changed to 2.1301 x Quantity on hand of 4450
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10-27-2014, 11:10 PM
Post: #4
RE: Making the same item at different factories
There is a function being called inside of BOMs.php - UpdateCost() that recalculates the cost at each change in the BOM.
Is this not correct? Should it be removed?
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10-28-2014, 03:04 PM (This post was last modified: 10-28-2014 04:15 PM by phil.)
Post: #5
RE: Making the same item at different factories
In your scenario it doesn't make sense of course - and you should comment this out. However, in a scenario where the item is only ever made at a single location - it is good practice I think to roll up costs often. This ensures that it is done often. Probably it should be a config option ideally.
I can see this change was originally done by Tim - and thinking it through I agree for most users of webERP this will be the right call.

Phil Daintree
webERP Admin
Logic Works Ltd
http://www.logicworks.co.nz
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10-28-2014, 11:01 PM
Post: #6
RE: Making the same item at different factories
Consider the simple scenario of repackaging 1 raw material into a finished good.
Example 1: Purchase 10,000 units of Item 123 at .90/unit. Receive into inventory. Enter Supplier Invoice. Purchase another 10,000 units of Item 123 at 1.00/unit. Receive into inventory and enter supplier invoice. Avg cost of Item 123 is .95/unit. Build Item ABS out of Item 123. Receive 20,000 units of ABS and issue 20,00 of 123. In Inventory I will have 20,00 units at .95/unit

Example 2: Purchase 10,000 units of Item 123 at .90, receive into inventory and enter supplier invoice. Now build 10,000 units of Item ABC out of 10,000 units of Item 123. I will have 10,000 units at .90 in inventory. Purchase another 10,00 units of Item 123 at 1.00, receive into inventory and enter supplier invoice. Because I have 0 onhand before receipt and invoice my new std cost of 123 becomes $1.00. If I now update the BOM (Even the location, wkctr or autoissue flag) my cost of ABC becomes $1.00. If I build another 10,000 out of the remaining Item 123 at $1.00 I will end up with 20,000 units at $1.00 in inventory.

Which is correct? In my head I value the inventory .95/unit * 20,000 units.
The timing of the BOM update and work orders has now dictated the value of my inventory on my balance sheet.
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10-29-2014, 10:46 AM
Post: #7
RE: Making the same item at different factories
I am not sure there is a correct answer... depends on your policy. There is certainly an argument for costing it based on how you would make it now - given the costs of items now.
Although, accounting standards generally say inventory should be valued at the lower of cost or net realisable value. If the cost increases because component costs have increased/changed then it is incorrect accounting standards wise to revalue all your inventory. However, you make the better decisions around pricing and manufacturing if you know what the current cost is.

Consider, the situation where BOMs are altered and no cost roll up is done. Prices updated based on costs - then you make some ... and cost roll up is done - but we are now selling at a gross loss. How much is inventory really worth - if you are going to replace it - the cost of manufacturing a new lot!

I say this should be configurable.

Phil Daintree
webERP Admin
Logic Works Ltd
http://www.logicworks.co.nz
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