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product costing and pricing
This system is about making, costing and pricing a product. Leather handbag is the example. You may change the system to suit your business, or tweak it into costing time-and-material projects. This system records components necessary for making leather handbags, the cost of making a batch and calculates a unit price. Direct materials, direct and indirect labor and overhead costs are covered. First, the initial database is created. The component raw materials, units of measure, general ledger accounts and steps for making handbags are recorded in the database. The screens used are Components Inventory, Units of Measure, General Ledger Accounts and Manufacturing Steps. Second, production standards are entered: the optimum units of components and the time required to complete a batch of handbags given the ideal production circumstances. The standards are the production benchmark. Next, purchase of components and other expenses are entered via the Raw Material Purchases screen. The components are added to the Components Inventory. The system consists of seven programs:
This is a sample of recording direct labor (contract):
Sample of recording direct (overhead?) labor (permanent employee):
At this point, a GL accounts list may be added to the screen to facilitate posting of expenses to the accounting system. Leather is purchased and recorded:
Another purchase is recorded:
Both purchases are automatically reflected in the Components Inventory File, using weighted average cost:
Finally, the production of a batch is recorded: 1. Open the Costing and Pricing screen. 2. Click on the Job ID field to assign the next job ID, 10000. 3. Click on the Job Date and select the date from the pop up window. 4. Select the product ID from the list. 5. Select the components from the other lists and enter the units used. The available units and unallocated costs are automatically retrieved from Components Inventory File.
Next: 1. Enter the mark- up on cost, say 110%, to cover profit margin and other overhead costs not yet included. 2. [Compute] the total cost, unit cost and unit price. 3. [Create] to write the record to the database. In the example, the unit price is $30.98. Depending on the company's pricing policy, this is either the actual selling price or simply used as a guidepost to a standard unit price.
During the calculation, the Components Inventory File is also updated. Leather has been reduced to 390 available yards costing $3,412.50.
The above system may be enhanced to include capacity planning and scheduling and reporting.
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