Manufacturing
Overview
Manufacturing - simply the combination of items to make other items can be implemented effective from webERP version 3.06.
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).
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.
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.
- 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.
- 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
Work Order Entry
The Work Order is the medium for issuing components/raw materials to. A running total of the costs issued to the work order is maintained. Work orders can be created that have any number of output items. Output items are restricted to only "manufactured" items as defined in the item entry form. The work order tracks the quantity of the output items received against the work order and checks that no more than the work order quantity originally set up, with an allowance including the over-receive proportion as defined for purchase orders, is received.
Setting up a work order is performed from the Manufacuting tab -> transaction entry -> Work Order Entry. The work order number is automatically maintained and defaulted for new work orders as is the start date defaulted to the date the work order was created. Other data required includes:
- Factory location - this is the inventory location which is used to retrieve the bill of materials for the items being manufactured on the work order - it is possible to have different bills of material for the same item depending on the inventory location. This inventory location is also used as the default location where materials for the work order are issued from and the default location where manufactured items are received into. It is possible to modify this during the issuing and receive processes.
- Required By - this is the date when the manufacturing must be completed by
With the above information completed then the items to be manufactured on the work order need to be selected. Normally this should just be a single item but it is possible to have multiple outputs against a single work order which is useful for by-products or processes with several output products. There are search facilities in the work order entry screen - only items flagged as manufactured in the item definition screen (Stocks.php) will show for selection. For each item selected the quantity required defaults to the EOQ - (Economic Order Quantity) defined in the item definition (Stocks.php) screen. If no EOQ is defined for th item then the quantity defaults to 0 and must be entered manually. The quantity required can be over-ridden and changed at any stage.
The quantity received of the item is maintained automatically against the work order items. The balance of the work order yet to be manufactured and received shows as "on order" in the stock status inquiry. Similarly the quantity required of components as extended by the bill of material for work order items is shown as quantity demanded against component items stock status inquiries.
Closing Work Orders
The selection of work orders allows the costing to be viewed. The work order costing shows all the issues of materials and components against the work order as compared against the bill of material requirments - as they were when the first reciept of manufactured stock was received against the work order. The variances on the work order in terms of the usage of components and the expected cost of materials/components issued to the work order are displayed. Closing the work order takes these variances and if general ledger integration to inventory is enabled then journals are created to write back the work in progress balance. Of course if there are several manufactured output items on the work order then the variances are apportioned between the items based on the quantity of the item received multipled by the expected cost as a proportion of the total expected cost of all items received on the work order. The detail of how the postings created depends on whether weighted average costing is used or standard costing.
- Standard Costing: Under standard costing the entire variances are taken to the profit and loss account. The usage variance is taken to the general ledger account specified in the manufactured item's stock category record. The cost variance is taken to the item's purchase price variance account on the stock category record.
- Weighted Average Costing: If not all the stock manufactured on the work order remains on hand - perhaps some is sold - then the variance relating to the proportion that is left on hand is taken to the value of stock e.g. a negative variance increases the value of stock. A stock cost adjustment is also created (irrespective of whether the GL integration is enabled).