Manufacturing Module

Overview

It has been possible to build bills of material for manufactured items for some time but the functionality that allows the materials to be issued from stock and manufactured items received into stock was introduced with 3.06. This is the purpose of the work order.

Functionality to add labour items to work orders and post recovery amounts to a profit and loss account for issues of labour to a work order was added after 3.09 (Sept 2008).

Functionality to set up a master production schedule and explode bills of materials into the components required to manufacture this demand and calculate the required orders to be placed/rescheduled (MRP) was added by Mark Yeager in March 2009.

 

Bills of material now allow components to be defined as "auto-issue". Components set up to auto-issue, automatically create the issue transactions against the work order based on the bill of material quantities on the entry of receipts of a finished item against the work order. This decreases the administration of work orders for those components with relatively low value and limited possibility for any usage variance. It is not recommended that this feature be used on components where the final requirement for it could vary with for example yield differences between work orders. Work orders take the value of components and materials issued and divide this total cost between the output items to arrive at a cost per unit for all output items. The process for performing this calculation is called "closing" the work order.

Functionality to automatically create works orders for manufactured items at a default factory when a sales order is entered for which there is insufficient stock after all sales orders are delivered and outstanding works orders and purchase orders received. This functionality needs to be turned on as an option under configuration settings. The email address of the production manager who will receive an advice of the work order being created can also be defined in the configuration settings.

In dealing with serial or batch controlled items there are two ways that the system can operate. Either the serial numbers or batches must be created at the time the work order is created or they are entered at the time they are completed. If they are created at the time the work order is set up there is an option enter remarks about each lot or serial number about the manufacture or quality check data. To have serial numbers (or batches) defined at the work order entry stage this needs to be set in the configuration settings.

The sequence of events in manufacturing an item is as follows:

  • Enter a Work Order - selecting all the output items required to be included in the work order costing. To ensure accurate costing it is recommended that work orders be created for single items wherever possible. The quantity required of the item and the date the items are required to be completed by must also be specified. If the output item is a controlled item - either serialised or lot/batch controlled - then there is also an option to enter the next serial number or batch reference which will be retrieved when entering the manufactured items received. If the configuration is set to create serial numbers (or batches) up at the time of the work order entry then there is an option to create serial numbers automatically based on the next serial number for the item defined in the stock master - all that is required is the number of serial numbers to create.
  • Receive Items against the work order. When manufactured items are completed they can be 'received' against the work order. Auto-issue components are automatically issued. On the first receipt of manufactured items against a work order, the cost of the item is recalculated by rolling up the cost from the bill of material. A cost adjustment is performed if the cost changes. If serial numbers (or batches) have been defined at the time of the work order entry these will list for checking off the items being received as finished against the work order
  • Issue components and raw materials to the work order
  • Once all components and raw materials are issued to the work order and no more manufactured items can be received against the work order it can be closed. The closing process recalculates the cost of the items manufactured on the work order and if weighted average costing is used a cost update will be processed.

General Ledger Integration Issues

When the "Create GL entries for stock transactions (at standard cost)" option in the company preferences form is set to "Yes", then GL journals are created as a result of work order transactions. When a work order is created there is no GL impact. The ways the GL is impacted as a result of manufacturing processes are as follows:

  • Receiving Manufactured Items - the stock of finished goods - as per the stock category record of the item being manufactured is debited with the recaclulated (rolled up) cost of the item - as at the time of the first receipt against the work order and credited against the work in progress account of the item (from its stock category record). Subsequent receipts of manufactured stock against the work order are debited to the stock account at the same cost as the first entry. Also, auto-issue components that get issued at the time of the receipt of the manufactured item also create GL entries to debit the work in progress account of the manufactured item's stock category WIP account. The credit goes against the stock account of the component's stock category. For manufactued and purchased items this will be a balance sheet account. However, if the item belongs to a labour type stock category then it is possible to select a profit and loss "recovery account" and for the credit for the value of labour "issued" to the work order to go to this profit and loss account.
  • Issuing components to the work order - the same entries as for auto-issue components above. i.e. debit the manufactured output item's WIP account and credit the component item's stock account. Labour items can also be auto issue.
  • Closing the work order - compares the quantity of components issued against the bill of material at the time of the first receipt of the manufactured items - the volume differences are evaluated at the standard cost (as at the time of the first receipt of manufactured item) to come up with the usage variance posted to the debit or credit of the manufactured item's stock category record's usage variance account. Then the cost of the items issued to the work order are compared against the cost as at the time the first receipt of the manufactured item was entered - differences here are taken to the price variances account in the manufactured item's stock category record. It is the closing of the work order that ensures that the costs received from the work order in the form of manufacturing output equals the cost of the inputs - the various components and materials issued to the work order
EventDebitCredit
Components issued to the work order WIP a/ct from stock category of manufactured item Stock account from the category of the component item
Labour issued to the work order (identical to any other component except that labour type categories have profit and loss accounts for their stock account) WIP a/ct from stock category of manufactured item Labour recovery account from category of the labour type item
A completed manufactured item is received against the work order stock account from the category of the manufactured item WIP from the category of the manufactured item
Work order closed and the difference between the WIP debits and credits from the above transactions is compared and the balance is either
  • Standard costing - taken to material usage variance from the stock category of the manufactured item
  • Weighted average costing - if some of the manufactured stock remains on hand the variance is taken to the stock account from the category of the manufactured item. The cost of the manufactured item is updated with the recalculated WAC
WIP /

Usage variance

WIP /

Usage variance OR stock

 

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