#7 Use WIP-Based Costing

+ Transcript

The seventh essential process is to use WIP-based costing.

All manufacturing companies have the same challenge when it comes to product costing - how can labor, overhead, and subcontract services be incorporated into product costs? Only with complete cost profiles can you make good pricing and product decisions.

The Shop Rates screen is used to calculate hourly rates for labor and manufacturing overhead that get applied to your work centers, where they can be factored up or down for exceptions.

The Cost Rollup is used to roll up costs through all levels of your product structures so that you get an estimated cost against all your manufactured items.

The Job Receipts screen is used to receive finished items to inventory. The program calculates the total unit job cost for you, which includes material, labor, overhead, and subcontract service costs. This unit job cost is the cost that gets received to inventory and ultimately flows through to cost of goods sold.

Using WIP-based product costing is an essential element in boosting your manufacturing efficiency. Instead of operating in the dark with incomplete product costs, with DBA you are with estimated and actual product costs that provide a complete cost profile for making sound pricing and product decisions.