Production: Worked Example
One month of production from sales order to full cost per unit, with every number worked out.
Repair kits: from sales order to full cost per unit
Goal: a customer orders 100 repair kits (KIT-1). Each kit is 2 × PART-A + 1 × PART-B. We make them on the filler machine with one employee and a contractor, add the month's factory rent and branding, and find what one kit really cost.
The data
| What | Value |
|---|---|
| KIT-1 bill of materials | PART-A 2, PART-B 1 per kit |
| Prices | PART-A 5.00, PART-B 2.00 |
| Machine FILLER | Typed rate 20.00 per hour; 15 kW; tariff 0.18 per kWh; electricity account 5210 |
| Employee EMP01 | Monthly pay 4,800; standard hours per month 208 → 23.0769 per hour |
| Outside labour | Contractor A, lump sum 150.00 |
| Production Settings | Labour absorbed 5150, Outside labour 5155, Machine absorbed 5160, cost of sales 5001 |
| Expense type RENT | Add to stock cost, basis Output quantity, account 5201 Factory rent (October: 1,200) |
| Expense type BRAND | Report only, basis Output quantity, Admin or selling cost; 9,600 a year |
| Also in October | Entry ASM-0052: 300 × KIT-2, book cost 1,500.00 (5.00 each), including an expense line of 200 on 5201 |
The steps
| # | Screen | Action | Result |
|---|---|---|---|
| 1 | Sales Order screen | Customer Al Waha Trading orders KIT-1 × 100 | SO-123 |
| 2 | Production → Job Orders | Add Job Order → Sales Order SO-123 → Save | JOB-0001: KIT-1 ordered 100, Not started |
| 3 | Job Orders | Produce on KIT-1 | Item Assembling with JOB-0001, KIT-1, Output Qty 100; materials PART-A 200, PART-B 100 |
| 4 | Item Assembling, header | Machine FILLER; Start 14/10 08:00, End 15:30 | Duration 7.5; Machines tab: FILLER 7.5 h × 20.00 = 150.00 |
| 5 | Materials tab | Check the quantities used | PART-A 200 × 5 = 1,000.00; PART-B 100 × 2 = 200.00; total 1,200.00 |
| 6 | Labour tab | Employee EMP01, 7.5 h; Outside Contractor A, Lump sum 150 | 173.08 + 150.00 = 323.08 |
| 7 | Expenses tab | Add electricity → FILLER, 7.5 h → Add | 15 × 7.5 = 112.50 kWh × 0.18 = 20.25 on 5210 |
| 8 | Cost summary tab | Check, then Save | Book cost 1,693.33; unit cost 16.93 |
| 9 | Transactions → Batch Allocation | Item assembling → the entry → Post with batches | Stock: PART-A −200, PART-B −100, KIT-1 +100 at 16.9333; voucher below |
| 10 | Job Orders | Open JOB-0001 | Produced 100, Remaining 0, Completed |
| 11 | Sales | 40 kits are sold during October | KIT-1 on hand: 60 |
| 12 | Production → Expense Distribution | RENT, 01/10–31/10 → Load targets → Apply | Bill 1,200, charged 200, to distribute 1,000: KIT-1 250 (150 to stock, 100 to cost of sales), KIT-2 750 |
| 13 | Expense Distribution | BRAND, 01/10–31/10, To distribute 800 → Load targets → Apply | KIT-1 200, KIT-2 600; nothing posted |
| 14 | Production Reports → Production cost sheet | October → Show | KIT-1: book unit cost 16.93, full unit cost 21.43 |
Step 6: the labour rate
4,800 ÷ 208 = 23.0769 per hour. 7.5 hours × 23.0769 = 173.08. A user without the Labour Cost right sees Worked out on save instead of the rate, and the same 173.08 is saved.
Step 8: book cost
| Materials | Labour | Machines | Expenses | Book cost | ÷ 100 = unit cost |
|---|---|---|---|---|---|
| 1,200.00 | 323.08 | 150.00 | 20.25 | 1,693.33 | 16.93 |
Step 9: the posting voucher
| Dr / Cr | Account | Amount |
|---|---|---|
| Dr | KIT-1 inventory | 1,693.33 |
| Cr | PART-A inventory | 1,000.00 |
| Cr | PART-B inventory | 200.00 |
| Cr | 5210 Electricity – factory | 20.25 |
| Cr | 5150 Labour absorbed | 173.08 |
| Cr | 5155 Outside labour absorbed | 150.00 |
| Cr | 5160 Machine cost absorbed | 150.00 |
KIT-1 had no stock before, so its cost price becomes 1,693.33 ÷ 100 = 16.9333.
Step 12: October rent
Shares by output: KIT-1 100 of 400 = 25 % = 250.00; KIT-2 75 % = 750.00. KIT-1: 60 of the 100 made are still on hand, so 250 × 60 ÷ 100 = 150.00 to stock and 100.00 to cost of sales. KIT-2: all 750.00 to stock.
| Dr / Cr | Account | Amount |
|---|---|---|
| Dr | Inventory (KIT-1) | 150.00 |
| Dr | 5001 Cost of goods sold (KIT-1) | 100.00 |
| Dr | Inventory (KIT-2) | 750.00 |
| Cr | 5201 Factory rent | 1,000.00 |
Cost prices: KIT-1 16.9333 + 150 ÷ 60 = 19.4333; KIT-2 5.0000 + 750 ÷ 300 = 7.5000.
Step 14: what one kit cost
| Total | Per kit | |
|---|---|---|
| Book cost (materials, labour, machine, electricity) | 1,693.33 | 16.93 |
| + Factory rent (added to stock cost) | 250.00 | 2.50 |
| + Branding (report only) | 200.00 | 2.00 |
| Full cost | 2,143.33 | 21.43 |
Repair kits, end to end
This video will show: the whole example above in one continuous recording, from the sales order to the full cost per kit.