| # Calculation of cost/valuation prices for standard/customized/STO items An item's standard cost price is a calculated price that provides an estimation of the item's value. The standard cost price of a manufactured item consists of material costs, operation costs, and end-item surcharges. For more information, refer to Standard cost price. Use the Calculate Cost and Valuation Prices (ticpr2210m000) session to calculate standard cost prices and valuation prices. Depending on the value of the Cost Price Calculation Method field, LN determines how the product structure is analyzed during cost price calculation. For more information, refer to Cost price calculation methods. A price calculation code stores the price calculation data that is used to calculate the cost price. The standard price calculation code specified in the Cost Price Calculation Parameters (ticpr0100m000) session stores data to calculate the standard cost price. Other price calculation codes store the data for simulation purposes. For more information, refer to Price calculation code. The topic below describes a single-level cost price calculation by ERP for items of the following types: Standard items. Customized items. Standard-to-order (STO) items. The costs of a routing's last operation are calculated first. After that, the previous operations are calculated, one by one. For a schematic overview refer to Cost price calculation flow chart. STEPS IN THE COST PRICE CALCULATION PROCESS Step 1. Determine the routing for the item To calculate the standard cost price of an item, first the appropriate routing for the item must be determined. LN must know the routing to determine the set of operations that is used to produce the item. In addition, the best order quantity in which the item is produced must be established. If the Order Qty-dependent Routing check box in the Items - Production (tiipd0101m000) session is selected, the routing depends on the number of items that is going to be produced. Because the production order quantity is not established yet, when you calculate the standard cost price, the selection of the routing is based on the number in the Fixed Order Quantity field, or the Economic Order Quantity field in the Items - Ordering (tcibd2500m000) session. If the Order Qty-dependent Routing check box is not selected, the default routing is taken. For more information, refer to Selection of routing to calculate costs. For customized items, LN determines the number of end items by totalizing the end items for all project parts (see the Project Parts (tipcs2111m000) session). For the rest, the same procedure is followed as for standard items, except that a customized item can only have one quantity-dependent routing. Step 2. Calculate net output and gross output for the operations For every operation, the net output and the gross output is calculated. The net output and the gross output are used to calculate material costs and operation costs for an operation. For the last operation, the output is end-items. For the previous operations the output is intermediate products. The scrap and yield on the operations are taken into account to calculate the gross output for each operation. Standard cost price calculation starts with determining the output of the last operation. For the last operation, the net output equals the order quantity as determined in Step 1. You can calculate the gross output of the last operation based on the net output using the operation's scrap and yield:
    Gross output = [net output x 100 / yield % on operation] + scrap quantity on operation
The gross output of the last operation equals the net output of the preceding operation. Using the scrap and yield of the preceding operation, you can calculate the gross output of that operation. In the same way, the gross outputs and net outputs of the other preceding operations are calculated, one after another. All quantities and amounts are recalculated to one end item by dividing the quantities and amounts by the number of end items as determined in Step 1. Step 3. Calculate operation costs LN must determine the man hours and the machine hours spent on an operation. The way that man hours and machine hours are calculated by LN depends on whether an operation has a fixed duration or not. For more information, refer to Calculating man/machine hours. To calculate operation costs, the calculated hours for an operation are multiplied by the operation rates. Operation rates are defined in the Operation Rates (ticpr1150m000) session, and can exist for labor, machines, overhead on labor, and overhead on machines. The operation rates are linked to an operation rate code (defined in the Operation Rate Codes (ticpr0150m000) session). The operation rate code is linked to a work center in the Work Centers (tirou0101m000) session, and/or to a work center/task relationship in the Task Relationships (tirou0104m000) session. Whether the operation rates linked to the work center, or to the work center/task relationship are used for cost price calculation, depends on the setting of the Type of Operation Rates field in the Cost Price Calculation Parameters (ticpr0100m000) session. If the parameter says that the operation rates of the work center are used for cost price calculation, LN must determine the work center type of the work center on the operation. If the work center is a main work center or a sub work center, LN looks for the operation rates, and uses them to calculate the operation costs. If the work center is a subcontracting work center, LN determines the subcontracting method, and calculates the subcontracting costs as explained in Subcontracting rates. All quantities and amounts are recalculated to one end item by dividing the quantities and amounts by the number of end items as determined in Step 1. Step 4. Calculate material costs for the operation To calculate the material costs for an operation, LN needs to know the material input. Material input is referred to as net input if the scrap is not taken into account. Net input is calculated as follows:
    Material net input = gross output items preceding operation x net quantity in BOM
Note that the gross output of end items for the last operation equals the order quantity as determined in step 1. However, LN needs to know the gross input of materials for every operation. The gross input is based on the net input, but takes the BOM line's scrap into account:
    Gross input = [(scrap% of BOM line/100 + 1) x net input] + scrap qty of BOM line
Note that input is related to component materials. Output is related to semi-finished products and end products, and is calculated as described in Step 2. To calculate material costs for an operation, LN multiplies an operation's gross input of materials by the prices of the materials concerned. If the material is a purchased item, the purchase price is taken. If the material is an (manufactured) item that consists of materials itself, the item's standard cost price is taken. The standard cost price of materials is calculated dependent on the multilevel calculation method that was selected in the Calculate Cost and Valuation Prices (ticpr2210m000) session. For more information, refer to Cost price calculation methods. The standard cost price of the material includes the surcharges for the material's item warehouse. However, the item warehouse surcharge is not aggregated to the cost price of the main item. Instead, the surcharges for the BOM warehouse are aggregated to the cost price of the main item. An item's purchase price is determined based on the purchase price priority, which is defined in the Price Calculation Codes (ticpr1100m000) session. The purchase price can be the simulated purchase price, the current purchase price, the average purchase price, or the latest purchase price. In cost price calculation, LN handles phantoms as normal items. All quantities and amounts are recalculated to one end item by dividing the quantities and amounts by the number of end items as determined in Step 1. Step 5. Search for previous operation In the preceding steps of this cost price calculation procedure, the costs for the last operation of the routing is calculated. If another, previous operation is found, the cost price calculation process is repeated as from Step 3. If a previous operation is not found, the process continues with Step 6. In (standard) cost price calculation, LN ignores the network routing that is established by using phantoms. LN includes the costs for the routing of the phantom in the material costs of the phantom item. Step 6. Calculate material costs for unlinked materials If no operations exist for an item, no operation costs are present. Consequently, the previous steps do not apply. Because material is required to produce the item, LN calculates in this step the costs of these so-called unlinked materials. The calculation for unlinked material costs equals the calculation as described in Step 4. Note that if operations are available, but (some of) the materials have 0 (zero) as a value in the Operation field, in the Bill of Material (tibom1110m000) details session, or the BOM Line - Material-Routing Relationships (tibom0140m000) session, LN assumes that those materials are required in the first operation of the routing. Step 7. Calculate surcharges The last step in the cost price calculation procedure is to calculate the surcharges. Several types of surcharges are distinguished when calculating the standard cost price, for example, surcharges for items, for item groups, for item/warehouse combinations, and for general warehouses. In addition, you can distinguish between surcharges that are effective during the item's receipt in the warehouse, or during issue of the warehouse. Surcharges are defined in the Item Surcharges (ticpr1110m000) session. Surcharges are calculated in a specific sequence. This sequence is important because surcharges can be calculated over other surcharges. For standard cost price calculation, surcharges are calculated in the following order: Item receipt surcharges. Item group receipt surcharges. Item/warehouse receipt surcharges. Item group/warehouse receipt surcharges. General warehouse receipt surcharges. Item issue surcharges. Item group issue surcharges. Item/warehouse issue surcharges. Item group/warehouse issue surcharges. General warehouse issue surcharges. Note the following: The general warehouse is the warehouse that you define for the item in the Items - Ordering (tcibd2500m000) session. You can define surcharges for the general warehouse in the Item Surcharges (ticpr1110m000) session. To do this, you leave the Item field and the Item Group field empty, and you select the general warehouse to define the surcharge for. The item/warehouse surcharges are only taken into account for cost price calculation, if the warehouse equals the general warehouse defined in the Items - Ordering (tcibd2500m000) session. For standard cost price calculation, item and warehouse surcharges are included regardless of their realization moment (receipt or issue). If multiple surcharges of the same type are defined, they are handled by their sequence number, lowest number first. Step 8. Aggregated or detailed cost price In LN, you can determine how to break down the cost price: from aggregated on the cost components defined in the Items - Costing (ticpr0107m000) session, until detailed in a greater or lesser degree. If you want to break down your cost price in a detailed way, you must enter a chart with an associated detailed cost component structure in the Items - Costing (ticpr0107m000) session. For more information, refer to Cost components in Manufacturing. THE ACTUALIZING PROCESS You can make the calculated standard cost price and the valuation price actual as follows: For standard items in the Calculate Cost and Valuation Prices (ticpr2210m000) session and the Actualize Standard Cost and Valuation Prices (ticpr2220m000) session. For customized items in the Calculate Cost Prices by Project (tipcs3250m000) session. During the actualization process, the cost component structure (consisting of the aggregated and detailed cost components), the cost price, and the valuation price are made effective. In other words, the structure and prices are stored for an item for a certain date. After the actualization, the effective cost component structure can be viewed, for example, in the Effective Cost Component Structure by Assembly Line and Item (ticpr3161m000) session. If an item's cost component structure has changed, or the valuation price or cost price for an FTP item, Warehouse Management adjusts the inventory value of a warehouse. The inventory value adjustment processes the actual order price into the inventory value of the items. The value correction is posted to Financials and is stored under a revaluation order code. The revaluation order code is generated automatically and can be viewed in the Item - Standard Costing Data (ticpr3501m000) session. You can use the revaluation code in Warehouse Management to track the valuation changes. Note You cannot actualize cost prices of a project of the type Budget. |