MSG Team's other articles

12233 3PL Contract Logistics Operations

While Freight Forwarding is an important function of 3PL Service providers to facilitate the Supply Chain, another equally important function managed by 3PL Logistics Companies is Contract Logistics. Under the broad umbrella of Contract Logistics, 3PL providers provide services of setting up consolidation centers, distribution centers, warehouses and inventory management services. European network of transportation […]

9085 The Effect of Rising Oil Prices on the Indian Economy

The prices of oil have once again started going through the roof. In the past few years, the prices of oil have seen a steady downturn. This can be largely attributed to the supply gut that was created as a result of a new technology called &#147fracking.” The world has changed immensely since then. Geopolitical […]

11995 Why Jet Airway’s Problems are Symptomatic of the Troubles in the Indian Aviation Sector

The Never Ending Problems of Jet Airways Not a day goes by without some news or the other about the beleaguered airline, Jet Airways and it’s never ending saga of seeking bailouts and restructuring its massive debt. What was once a pioneer and a premium airline in the Indian Skies is now facing humiliation on […]

12145 Operational Transparency

As children, we have always had to prove to our teachers or our parents that we have been working. The homework book was proof that we have spent our time productively and would often calm down angry parents and teachers. It seems like the same principles also apply in corporate life! Harvard Business Review has […]

8983 Disaster Recovery, Crisis Management Plans and Ownership

When and if a disaster strikes any business operation or organization, what helps the Organization to deal with the crisis effectively, continue to run the business operations to the extent possible and get back on the recovery path are the Disaster Recovery and Business Continuity plans. However the effectiveness of the plans depends largely upon […]

Search with tags

  • No tags available.

The costing module is one of the important controlling modules which enables effective internal cost control and accounting. All functionalities regarding cost analysis and cost allocations are provided by this module. The cost accounting module is highly integrated with budget and general ledger modules as well as draws input and provides output to various logistics modules such as sales, procurement, warehousing, shop floor and bill of materials.

Cost Accounting module: Cost accounting module consists of following functionalities:

  1. Overhead Cost controlling.
  2. Cost price calculation.
  3. Hours accounting.
  4. Activity based costing.

Overhead Cost controlling: Overhead cost, which is an indirect cost, can not be directly assigned to the products manufactured or services rendered. Sometime, overhead cost is a significant percentage of overall cost. This functionality helps in defining allocation relations in the form of surcharge/rate applicable to various cost centers which in turn is comparable to budgeted surcharge/ rates. The overhead cost control thus helps to monitor and allocate of indirect cost.

Cost price calculation: Under cost price calculation functionality, simulation (such as to make or subcontract), and calculation of price for standard and customized items are performed. This functionality is crucial in determining the lowest price limit for which a product is profitable. The cost price for standard item is calculated based on the following:

  1. Material cost: Which may be latest procurement price or simulated purchase price.
  2. Operation cost which may consist of labor and machining cost.
  3. Subcontracting rate.
  4. Surcharges for coverage of overhead such as management cost/inspection cost.

For calculation of cost price for customized items, project specific rates and surcharges are applicable. Cost price calculation also forms basis of calculation of valuation price (where a surcharge is added such as warehouse transfer surcharge) which in turn is used for internal financial transactions such as inventory transfer, Work in progress inventory. Sales price or suggested retail price where a sales price surcharge is added to cost price is also derived from this functionality.

A typical flow chart for calculation of cost and sales price is as follows:

Cost Estimate and Accounting in ERP

Hours Accounting: This functionality is used to account for employees and machine cost and charge these costs to appropriate production orders. Hours spent can either be entered directly or the system can automatically back flush an estimated hour, on completion of an operation. When hours are posted, financial transactions are created in general ledger. Hours accounting is normally done through a working timetable and normal and overtime rates can be defined in the system. It is also possible to enter estimated/budgeted number of working hour for an employee or a work centre for a particular period (such as month/year) and compare the estimated/budgeted hours with actual hours.

Activity based costing: This is an extension of traditional system of distribution of overhead allocation, where only a few allocation bases are used. This functionality helps in controlling cost objects (which may be anything like products, services, projects, distribution channel) with their cost drivers, through a bill of activities and activity results. Thus, this functionality determines the consumption of business process by products, customers and other cost objects based on the cost drivers and helps in monitoring and controlling cross departmental business process.

Article Written by

MSG Team

An insightful writer passionate about sharing expertise, trends, and tips, dedicated to inspiring and informing readers through engaging and thoughtful content.

Leave a reply

Your email address will not be published. Required fields are marked *

Related Articles

Configuration Control and Setting Up of Base in ERP System

MSG Team

Change and Risk Management in ERP Implementation

MSG Team

Cash Management Module in ERP

MSG Team