This part of the guide is focused on helping you to understand the Absorption Costing report, where you will find all data related to absorption costing and the functions which will later perform its execution. Before you can get into the report, however, there are several rules you must follow to prevent some common mistakes, as they can hinder your progress if Beas identifies them in your setup.
Absorption Costing setup
Absorption Costing workflows
IMPORTANT SETUP RULES:
•Cost Centers cannot have both Pre-Distribution and Distribution Keys at the same time.
•Cost Centers with either Pre-Distribution or Distribution Keys must have the field “As Cost Unit” set to “No”. As a general recommendation when using absorption costing, all Cost Centres must have “As Cost Unit” set to “No”.
•Cost Centers cannot have Pre-Distribution or Distribution Keys distributing values back to themselves.
Additionally, there are two extra recommendations for absorption costing. These recommendations will not prevent you from running absorption costing but may trigger additional warning messages.
•Direct Cost Centers receiving values either directly or from Distribution Keys should have production activities linked to them (if not, you might want to link a Distribution Key to them to prevent having non-absorbed values).
•Cost Centers with associated production activities should not be linked to Distribution Keys (as their values will go to the manufactured goods).
1)Run the Absorption Costing report. You need to select the month (remember that it is always within the selected Statement Cycle) and, if not done before, leave “New Calculation” as “Y” for Beas to process the distributions between direct Cost Centers and manufactured goods, which happens according to the Distribution Base set in the Statement Cycle. If you have already processed it, you can set “New Calculation” to “N” on the next time you open the report, as it will speed up the opening by not processing new calculations.
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2)Analyze the report. The absorption costing report presents you with a list of all manufactured goods within the selected month, as well as the calculated appropriations and costs to revert for each one of them. Remember that appropriations come from financial data distributions, and costs to revert from costs booked to the goods according to the resource cost rates. The difference between non-total and total columns is that non-totals represent values before discounts and additions due to “Consumed Assemblies” (explained in 6) and totals represent values after applying these discounts and additions.
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3)Check the Summary tab. Through the summary, you can understand how your financial values are distributed to your manufactured products in three main groups:
•Absorption Costing: values that Business Performance can absorb into the products during the absorption costing execution for the selected month, as the goods were processed and received on stock.
•WIP: values kept open for future months because the goods were not received on stock (production process incomplete).
•Absorption Costing + WIP: if everything is correct, this value will be exactly the same as the financial data, since all manufacturing costs must be appropriated to production. One common source of differences is because direct Cost Centers receiving costs were not used in production, so they have no production orders to distribute their contained values. If this happens, you will see a value different from 0 under “Total value of all cost centers that receive values and are not used in production.
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4)Whenever you have a value different from 0 under “Total value of all cost centers that receive values and are not used in production”, check the tab “Cost Centers not used in Production” to find out who they are. Then, assign them Distribution Keys (not Pre-Distribution, or values received from indirect Cost Centers might remain on them) to redirect their values to the other direct Cost Centers. Remember to erase this Distribution Key from the Cost Centers’ master data after you complete the absorption costing run.
Important note: After setting the Distribution Keys, you must execute the Cost Calculate process again and reopen the Absorption Costing report with “New Calculation” set to “Y”. If not, no values distribution will happen.
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If you followed all these steps correctly, the Summary report should now show the full financial value under “Absorption Costing + WIP”.
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5)The WIP tab contains all production orders for products whose manufacturing process could not be completed during the month. These products consumed production resources, thus requiring a share of the total manufacturing costs, but are not on stock so to be reevaluated. Beas, in this case, will keep them open until the next periods when they are finally received on stock, a situation in which you will see values coming from previous months to increase appropriation amounts. If all your items in production were received on stock until the end of the month (at least through partial receipts for the work done), WIP will be empty.
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6)The Consumed Assemblies tab details all sub-assemblies that were produced and consumed during the month to be incorporated into other products. This is needed to prevent these assemblies from receiving a direct appropriation, which would send values to COGS due to the items not being on stock anymore. With this behavior, Beas can roll up manufacturing costs throughout assemblies until the last level is received on stock. You will see negative amounts for consumed sub-assemblies and positive amounts for the assemblies who consumed them.
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