Differences between Job Estimated Cost and Estimated Cost (from Cost Rollup)
Overview: Manufactured (M) items estimated costs are established using the BOM Cost Rollup. The purpose of the cost rollup is to provide you with good overall estimates for your manufactured items based on their theoretical typical production run size (as determined by the Est Cost Qty or Batch Size in the item master). The BOM rollup estimated cost is for reference and analysis only and is not used for inventory valuation or during Make jobs. Once a Make Job is created from a BOM, all job costing analysis focuses on the Job Estimated Cost and the BOM estimate is no longer considered. Under most circumstances the job estimated cost and BOM estimated cost will be identical or very close, but there are several factors that can cause differences.
Common causes for differences between Job Est Cost and Est Cost:
- Your make job quantity differs from your Est Cost Qty or Batch Size at the item master
- Components or Descriptors were added to the Make Job details after the job was generated
- Your job routing production rates are different than your BOM routing rates
- Work Center hourly costing rates are locked in at Make Job creation.
- Purchased items estimated costs do not factor in quantity discounts or vendor special pricing
Make Job Qty Differs from Estimated Cost Qty (or Batch Size)
Tip: Pay attention to items with setup
When performing a BOM cost rollup to establish a manufactured item's estimated cost, you must select your typical production run size (Est Cost Qty or Batch Size). Any fixed components or costs (qty and costs that do not change with increase in qty produced), such as setup, get spread out over your typical production size. If your actual job quantity in a Make Job varies from your Est Cost Qty (or Batch Size) your per unit estimates can differ substantially.
Lets say you have a BOM defined with a routing sequence that contains setup. For simplicity lets assume that you you have 1 hour of setup at a work center that has hourly costing rates of Setup $10/hour, Fixed OH $10/hour, and Var OH $5/hour. If that parent item had an Est Cost Qty of 100, the unit cost contribution of that one hour of setup (the hour of setup would also apply one hour for fixed and/or variable overhead at their respective rates) would be $25/100 = $0.25.
If you created a Make job for that item and only made a quantity of 1, the per unit setup (setup, fixed and variable) would be the full $25 because you incur the setup costs regardless of quantity made. In this case there is a $24.75 unit cost difference.
If you Make Job order quantity is exactly equal to your Est Cost Qty (or Batch Size), you would expect your job est costs for fixed components to exactly equal to your BOM est costs.
Adding or altering component quantities to the Make Job will alter the Job Estimated Cost
DBA allows you to create a Make Job using a BOM and freely add or alter component lines. These new lines will alter the job estimated cost. This is by design to accomodate the many companies that perform custom manufacturing. If you wish to operate closer to your BOM estimated costs, do not alter or add your line items quantities in your Make Job details.
Your job routing production rates are different than your BOM routing rates
Once a job is created, for a variety of reasons you may choose to alter your routing production rates. This will change your job estimated cost accordingly.
Work Center hourly costing rates are locked in at Make Job creation
When a Make Job is created it will use the hourly costing rates stored against the routing sequence work center at time of job creation. If those rates are changed, it will not affect jobs already created. If the work center rates are changed and a new Cost Rollup is performed, then the BOM estimate will differ from existing jobs.