How Much Can You Query Your Costing Data?
Sep 15, 2015
How much does it cost to make widget xyz? What costs would we save if we stopped producing it? How much overhead is this product absorbing? What if we decided to buy the product instead of make it? If you are like any other cost accountant, a member of your team has posed these very questions.
Depending on the sophistication of your system and your ability to plan ahead, you are either very uncomfortable right now with a knot in your throat, or you are feeling at ease saying I got this. I hope you are the later. However, I fear many of you are the former.
First, we need to know what costs we are considering. When making a part are we talking fully loaded or just direct costs? If you stop production on a given product to save money, then you are absorbing some overhead with the production of that part. How much absorption is important. There are additional questions associated with this as well. For example, at what level of capacity are you operating and can you replace the volume from widget xyz with another part?
It is vitally important to understand the appropriate scenarios and circumstances when determining the status of your operations. We cannot and do not work in a vacuum, but when we are tasked with a specific question we need to define the necessary parameters. This may require making assumptions.
Once you have determined your parameters, you should be able to efficiently obtain reports wth all of the necessary information. I believe this step is where many manufacturing operations have difficulty. Some organization may not have a system capable of reporting such. Other management accountants fail to think proactively and do no prepare the system to offer such data. It is your job to query your data through your system and provide reporting with just direct costs, or overhead, etc. If you did not structure your system in a what that the information is easily segregated, it can be almost impossible to be confident in your numbers. You may try export it to Excel and attempt to manipulate the data, but your chance for error is much greater.
Certainly, if you are getting a new software system or looking to update your current costing system then consider setting up your BOM in such a way that a query of data is easily available.
Categories: Cost Accounting