Which document changes what
| Document | Stock | Ledgers |
|---|---|---|
| Bill of material | No | No |
| Production order | No | No |
| Production journal, saved | No | No |
| Production journal, approved | Yes: raw materials out, approved finished goods and by-products in | No |
The cost of the finished goods
When you save the journal, Penahak works out the figures below; the approval uses them as they were saved:
| Part | How |
|---|---|
| Raw materials | Each line's QTY times its Rate. The rate is the average cost of that product in the BOM's raw-material warehouse on the journal's date (value divided by quantity) |
| Fixed costs | The Amount of each fixed cost, scaled to the quantity |
| By-products | The value you gave them (Costing), taken off the cost |
| Total cost | Raw materials plus fixed costs less by-products |
| Rate of the finished goods | Total cost divided by the Production QTY |
The approved quantity comes into stock at that rate. The goods that were produced but rejected do not come into stock: their share of the cost is lost from the stock value.
| Example | |
|---|---|
| Raw materials used | 1,000 |
| Fixed costs | 200 |
| By-product value | 0 |
| Production QTY | 100, approved 90 |
| Rate of the finished goods | 1,200 / 100 = 12 |
| Value that comes into stock | 90 x 12 = 1,080 (the 120 for the rejected 10 is lost) |
Where the cost shows up
- The finished goods have a stock value, so Stock summary, Stock valuation and the Balance Sheet show it (Stock valuation: what your stock is worth).
- The raw materials' cost has left stock, at their first-in-first-out cost, which can differ a little from the average cost the journal used, so the stock value can move by that difference. In the Profit and Loss the cost sits in the closing stock figure: higher finished-goods stock, lower raw-material stock (Closing stock in the profit and loss, the balance sheet and the year end).
- The Finished goods costing report lists the cost of each production (Production reports).
Because nothing is posted to the ledgers, the fixed-cost Ledger is not debited and there is no wages or overhead entry. If your accountant wants the expense in the books, they record it with a journal voucher as usual (Make adjustments with a journal voucher).
| Area | Change |
|---|---|
| Raw material store | Flour 125 kg, sugar 25 kg and 250 packing boxes go out, 15,000 at the journal's average rates. When values are next worked out they are re-priced first in, first out, so this figure can move a little |
| Finished goods store | 240 cartons come in at 90 each: 21,600 |
| Rejected 10 cartons | Not in stock; 900 of cost is lost from the stock value |
| Fixed costs (labour 5,000, electricity 2,500) | Inside the 90 a carton only; no expense entry |
| Total stock value | About 6,600 higher: 21,600 in less 15,000 out. That is the 7,500 of fixed costs less the 900 lost |
| Ledgers | Nothing. The wages and the electricity bill reach the ledgers only through the vouchers you enter for them |
| Profit and Loss | Through closing stock: more finished goods, fewer raw materials |
The journal itself is worked through in Production journal: record production and approve it.
Common questions
The cost of the finished goods looks low.
Raw materials may have had a low or zero cost, or fixed costs were not on the BOM. Open Finished goods costing and compare.
The rejected goods: where are they?
They are not in stock. If you keep them, bring them in with a Stock adjustment (Adjust stock: counts, damage, expiry and write-offs).
Are by-products valued?
Only at the value you give them. A by-product with no value comes into stock at zero.