Production Costing

Production costing explains the value consumed and created by manufacturing work.

Open Production -> Costing.

Cost Areas

Area	Meaning
Material Cost	Component cost issued from stock or consumed by the BOM.
Labor Cost	Operator or labor-pool cost booked against production work.
Machine Cost	Machine or line cost where equipment costing is configured.
Overhead	Factory overhead absorbed by configured drivers.
Scrap And Rework	Cost of rejected, wasted, or reprocessed output.
Variance	Difference between standard, expected, and actual cost.

Piece-Rate Labor

Production operation completion supports two labor-cost bases:

Labor Basis	Production Entry	Actual Cost
Hourly	Configured labor rate and booked minutes.	Labor Minutes / 60 x Hourly Rate
Piece	Piece quantity and piece rate entered together at completion.	Piece Quantity x Piece Rate

Piece-rate fields are optional. Leave both blank to preserve hourly-rate behavior. Do not enter a payroll workbook QTY x RATE row as an hourly routing rate. Normalize the worker, operation, product/customer context, date, source sheet, and settlement treatment first. Production actual labor cost and payroll settlement remain separate ledgers and should be reconciled during the pilot.

When an operation has several operators, the production cost review should show the labour evidence at employee/operator level rather than hiding the whole operation under one supervisor or one line-level total. Each payable row should carry the employee, operation, minutes or piece quantity, rate, cost amount, source production order, and review status.

Payroll settlement happens after costing evidence is reviewed. Production costing explains what the order consumed; HR payroll decides what the employee is owed in the payroll period; Payments executes the approved payout batch. The three totals should reconcile before the production order is treated as financially complete.

For production labour, the preferred accounting bridge is a labour absorption clearing account:

1. Production completion debits WIP or production cost and credits production labour absorption clearing.
2. HR payroll accrual debits production labour absorption clearing and credits payroll or employee payable.
3. Payroll payment debits payroll or employee payable and credits cash, bank, mobile money, or payment clearing.

This prevents double-expensing the same worker amount while still letting production costing and HR payroll keep their own operational responsibilities.

Standard Cost Versions

Standard cost versions define the frozen or approved cost snapshot used when a production order is released. A version should stay aligned to the output item, BOM, and routing so the release-time cost basis matches the planned manufacturing structure.

Use standard cost versions to:

• compare planned standard cost against actual consumption
• keep alternate or future cost snapshots separate from the active production release
• support variance review when BOM, routing, labor, or overhead assumptions change
• provide a stable baseline for WIP close and finished-goods valuation

Open the Standard Cost Versions workspace from Production -> Costing to calculate, submit, approve, and activate the frozen snapshot you want the release flow to use.

WIP Valuation

Use WIP valuation to review work in progress by production order, operation, stage, and resource.

• compare material, labor, overhead, scrap, rework, and variance cost captured at each operation
• check output credits and remaining net WIP before handoff or final close
• identify active WIP, quality-blocked WIP, handoff-pending WIP, and final WIP residue

WIP Close And Variance Review

Use the costing workspace after production execution to review the close position before posting the order.

1. Confirm actual material, labor, machine, overhead, scrap, rework, and variance lines are captured.
2. Confirm the selected standard cost version matches the released production order.
3. Reconcile WIP residue against the finished output, returns, byproducts, and coproducts.
4. Clear open operation, execution-unit, quality, pending GL, and variance approval blockers.
5. Review material usage, material price, labor efficiency, machine efficiency, overhead absorption, yield, scrap, rework, output mix, WIP residue drivers, and the approved residual variance posting.
6. Confirm operator labour rows have been sent to payroll, included in a payroll run, or documented as non-payable.
7. Close the production order so residual WIP posts or queues as favorable or unfavorable close variance.

When a production operation is completed from the standard UI, the system attempts the configured production cost absorption posting for eligible completed work. If it fails, use the production order Post Costs retry after correcting GL setup or approval blockers. Do not close WIP while cost absorption is still failed or disconnected from the production order.

The Production Standard vs Actual Costing report decomposes each order into variance buckets. Material usage is derived from consumed-versus-planned component quantity at actual issue or standard rate, material price is the residual material variance, labor and machine efficiency compare actual booked minutes with planned operation minutes, overhead absorption is the remaining overhead variance, yield reflects finished-good output against planned output, and output mix shows byproduct or coproduct credit impact.

Cost Simulation

Use cost simulation when BOM, routing, labor, or overhead assumptions change before release.

• click Run Simulation to run a non-persistent projection from the Standard Cost Versions workspace
• adjust material cost, labor rate, overhead rate, and scrap allowance assumptions before rerunning
• review projected material, labor, overhead, total, unit cost, missing cost, and missing child BOM results
• compare planned standard cost against actual consumption
• review the likely WIP close outcome before posting
• check whether the projected variance needs release-time approval

Review Checklist

• material issues match BOM expectations
• finished output quantity is correct
• scrap and rework are recorded
• labor, machine, and overhead assumptions are complete
• operator labour rows reconcile to HR payroll review where employees are paid from the work
• the selected standard cost version matches the released production order
• variance buckets explain material usage, material price, labor efficiency, machine efficiency, overhead absorption, yield, scrap, rework, output mix, and WIP residue
• WIP and finished goods balances can reconcile to inventory and GL
• variance is reviewed before closing the production order

Related Guides

• Production Overview
• Production Operations
• Production Order To Dispatch, Billing, And Payroll
• Payroll
• Accounting GL Posting Rules
• Inventory Operations