Cost of Goods Sold (1) -- BPCS-L

We wish to do a better job of dividing our grand total cost of goods sold, for any given end item sold a customer, into what portion is due to * Raw material purchased from outside vendors * Work done by outside vendors * Labor done in our factories * Overhead * Scrap and other factors I'm looking for more ideas and perspectives to supplement my own thinking on this.

When an item is manufactured, the costs include labor and lower items in BOM, and to an extent we can look at some of this through CST300 but when inventory transactions go into ITH and then to GLD they go as a total cost stated as material, when in fact we know that most of that cost is labor, thus we get distortion with respect to material content, and difficulty tracing which labor variances responsible for crazy costs.

Are we missing some BPCS option that could tell us by end item and all sub-assemblies what the break down is of material and other content?

We are 405 CD Mixed Mode tracking by facility

Here is our cost architecture

Cost Bucket (Type) Rolls To

1 (Mat) 1 Material Costs 2 (Mat) 1 Wire Costs from our Extruder Division 3 (Lab) 3 Run time Labor (Labor Intensive factory work) 4 (Lab) 4 Machine time (Labor intensity very low on almost automatic machinery) 5 (Ovr) 5 Overhead Allocation based on Labor 6 (Ovr) 6 Setup Labor ... this is an area we have tried to track, then abandoned, may return to 7 (Ovr) 7 Downtime Labor ... cost of labor when they not able to be directly making the products

Notice in this chart that we are not now differentiating, for separate tracking, the costs due to use of outside vendor(s). I suspect that at some time in our future, this will become a sufficiently hot interest that our cost structure will be adjusted to address that, perhaps even a bucket for each one of them.

We extrude our own wire on spools, and we also purchase some in barrels, since different factory machines are best suited to various different delivery mechanisms. We try to track the two sources of wire, cost wise, so that our Extruder Division can be properly credited for income from our other factories so we get a true picture of the value of doing our own extruding

In our General Ledger we use the Standard Costs In our Cost Averaging we use Last Cost 99% of our Inventory Transactions are Dumped in Summary Form to a single "IN" GL Journal. a couple years ago our CFO tried Detail Form but ran out of "IN" Journals the diagnosis at the time was that if you want Detail without this problem you have to restructure your GL with more places to put the data, so no one area will fill up being drowned in data That restructuring was never done

We have heavy reliance on modifications and Query/400
I suspect that may be part of our problem

My latest proposals to management: ---------------------------------------------------- (can someone suggest a better idea?) These are ideas for new programs I could work on adding to our collection.

You see on INV300 summary screen where it shows ISSUES MTD and YTD. I would create an RPG report that lists that for all items sequenced by facility and item class, only including those items that are purchased or inter-facility, and multiplies the issues quantity by standard cost and actual cost with difference (variances in material cost are rare compared to labor but not nonexistant) I would have a switch in the program to list everything (when initially checking it working Ok) or totals only, or have one program for the list and another for the totals only, because the latter could use embedded SQL to skip many intermediate steps. You might want a variant to only list the detail on one particular item class.

Now this will show you MTD cost of issues of REAL outside material by class of material (terminals wire etc.) by facility into our production. It won't be linked to end item or customer.

You see on CST300 where for any given item there is a break down of component costs from material labor etc. Think of those values walking across a green bar page from middle of page to the far right end of 198 compressed print positions in which to the left are end items we sold this month in what quantity to what customers, sorted by customer then item. The report would show total sales $ on item for month, then this chart of costs, multiplied by quantities sold. Immediately below each cost bucket column would be computed percentage of total cost. At total time by customer, these percentages would be recomputed (You can do this in RPG but not correctly in Query/400).

A subsequent variant of this would be to do the total stuff by customer only, to make it easier to compare uniformity, or lack of it, in overall content differentiation by customer.

Now this will break down Cost of Goods Sold by end customer item based on our latest costs, not on the costs at the time of actual sale ... due to last cost, they are constantly fluctuating. It won't be including the specifics of what sub-assemblies or raw materials were responsible for the costs, just offering a big picture by customer and customer item on where most of our costs are.

I had made some other suggestions, based on clones of some of our existing modifications.

- Al Macintyre http://www.ryze.com/go/Al9Mac Find BPCS Documentation Suppliers http://radio.weblogs.com/0107846/stories/2002/11/08/bpcsDocSources.html BPCS/400 Computer Janitor at http://www.globalwiretechnologies.com/