In spite of some ERP promises, companies still struggle with obtaining precise numbers and with knowing the real cost of producing finished goods because of indirect costs involved with production. Our sales team hears this business problem almost daily from manufacturers whether they are in process, discreet, or mixed mode manufacturing. Dynamics 365 for Operations or Dynamics AX On Premise can solve this issue through proper setups.
Microsoft Dynamics 365 for Operations supports absorption costing by enabling indirect costs to be absorbed into the product cost. Examples of indirect costing or overhead expenses include:
● Depreciation of manufacturing equipment
● Maintenance expenses that are related to manufacturing equipment
● Shop floor expenses for cleaning, rent, or insurance
- Administrative expenses
Costing Finished Goods
Absorption costing is one of many cost accounting methods. The purpose of applying absorption costing is to ensure that indirect costs that originate from the manufacturing of finished goods are recognized and absorbed into the product cost. Absorption of indirect cost is important for ensuring accurate product costing and valuation of inventory. In some industries, indirect costs represent a significant portion of the product cost. Accounting standards or generally accepted accounting principles (GAAP) might recommend or require that indirect cost be absorbed.
The process in Dynamics 365 for Operations is outlined in the downloadable white paper, below.
If you need to complete the process in (aka 2012 R3), Cathy Dean held an AXUG webinar on the process. Please download the powerpoint presentation to hold on to for note taking, and watch her presentation below on how Dynamics AX traces production costs (direct and indirect) to the general ledger.
Clients First has been leveraging the power of Microsoft Dynamics ERP since the pre-cloud days when Dynamics 365 was called Axapta in 1999. Clients First and Dynamics 365 can give your business more insight into the costs of production through the use of ERP either in the cloud or on-premise. Reach out to us at Clients First to get a demonstration of the software.