Re: BPCS Cost-related Question

In his reply, Les Mittman states:

4.  In your situation, it appears that the Lot Size (for planning purposes)
is NOT necessarily the same value as the Lot Size for costing.  In
addition,
since Standards are normally set at the beginning of the year, finance
cannot
permit changes in the Lot Size which would in turn impact these standards.

Solutions:

One solution would be to provide another Lot Size field for Costing
purposes.
 This field would be independent from the current Lot Size field in the
Item
Master (IIM) and Facility Planning (CIC) files.  The costing related
programs
that use the Lot Size would be changed to retrieve this new Costing Lot
Size
field.

I agree that this is a possible solution and could be helpful in some
unique cases. This approach, however, raises a few other issues.

If lot sizes used in costing do not reflect production conditions, then
costs will be misstated. Assuming that the existing Lot Size field is being
actively used and maintained for production planning (a risky assumption
for some organizations), it seems to me that adding another lot size field
is an invitation for a finger pointing orgy between cost accounting and
manufacturing management when the time comes to review things like
inventory variances and standard costs. Who maintains the Cost Lot Size?
Who decides what the "correct" manufacturing lot size is? Finance
organizations are sometimes tempted (or required) to make the costs look
like someone's concept of what manufacturing should be doing, often without
the participation of the people actually doing it. This can be a real
friction generator when things don't turn out quite according to plan. I'm
not suggesting that maintaining sets of parallel information is never a
good idea, however an organization should be aware of the possible
consequences.

Backing up a bit, it is normal that the standard costs used to value
inventory are frozen for the accounting period. It is also typical that
manufacturing processes, including planned production lot sizes, tend to be
dynamic. To say that "finance cannot permit changes in the Lot Size"
(field) is not realistic. This is what multiple Cost Sets were made for. A
"frozen standard" set is created at the beginning of the budget period.
This set is used to value inventory. A "current standard" set can be rolled
up periodically to evaluate the impact of changes in the cost base due to
changes in the manufacturing environment, and an "actual" cost set can be
created from purchase receipts and the order close process to evaluate
current results. Management needs will dictate how often current costs are
updated and what actions will be taken as a result of any changes
identified. If accounting is concerned about changes in the Lot Size field
subsequent to setting the frozen standards, a "snapshot" of the IIM and CIC
files could be kept for traceability.

Just my opinions. Sorry if I rambled on.


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