Creating Items with a Fixed Cost

The manufacturing system within EBMS contains an option to preset a fixed cost of finished goods rather than calculating the total cost of the items consumed (raw material).

Fixed Cost Scenarios

This option is useful in the following situations:

1. To determine the income for a manufacturing division of a company. The difference between the perpetual cost of the raw materials and the fixed cost of finished goods is considered the income for the company profit center that manufactures the finished goods.
   
2. To maintain a consistence value of finished goods. The commissions calculated on the profit of individuals' sales are consistent if the cost of the finished goods is fixed. Invoice gross profit reports will be easier to analyze if the cost of products do not fluctuate dramatically. The user may base the fixed value on the cost of the same product from a vendor or distributor.  The following whole goods item (Dirt Shovel) contains a manufacturing adjustment component (MM) to create a fixed cost of $21 as shown at the bottom of the following dialog:
   

Complete the following steps to configure a whole goods item with a fixed cost:

1. The first step is to create an inventory item. Complete the following steps to create an inventory adjustment item:
   

1. Create an item with a basic description and appropriate Item code. Review the Product Catalog > Entering New Products for more details on creating new Inventory items.

2. Classify the adjustment item as No Count or Service.

3. Set the following general ledger codes within the advanced tab of the adjustment item:
   

4. The Sales general ledger account can be ignored if this item is not sold.

5. Set the Purchase and Inventory G/L accounts. The inventory debit transaction created for the adjustment item consists of the Inventory Variance general ledger code and the last 3 digits of the Purchase G/L code. Review the Tracking Counts > Inventory Variance section for more details regarding the inventory variance account.

6. Enter the Manufacturing Offset general ledger account. Credit transactions will be created to offset the additional inventory value created when the manufacturing batch is processed. Inventory Value of Finished Goods = Cost of Raw Materials (item’s consumed) + manufacturing offset. This general ledger account will be used only for the purpose of recording credit transactions for the manufacturing profit center if a manufacturing profit center is created (situation #1 discussed above). Set this account to the standard Inventory Variance account if no profit center is being used (situation #2).

2. Insert a new adjustment inventory item into the component list of the finished goods that contains the fixed costs.
   Review the Components and Accessories > Components and Accessories Overview section for detailed instructions on adding components to an inventory item.

3. Enable the Fixed manufacturing cost of $xx.xx option located below the components list.
   

4. Set the Adjust cost in item option to the manufacturing adjustment item by clicking on the down arrow to selecting the appropriate inventory item. Only the inventory items that are not classified as Track Count will show on the drop-down list.

5. Disable the Update from Purchases option if the fixed cost should never change. This option is found in the Pricing tab of the finished goods item.
   
   The Fixed manufacturing cost of $xx.xx on the Component tab is copied from the Cost field within the Pricing tab. This value is updated when this item is purchased from another vendor if the Update from Purchases option is enabled. Click OK to save changes.

6. Create a manufacturing batch as shown below:
   

The system enables the Fixed Cost option on the Finished Goods line of the batch. Notice that the system applied a Unit cost of $9.00 to the manufacturing adjustment item on the last line of the Items Consumed list. Since the unit cost of the dirt shovel is set at $21.00, the difference of the total of the Items Consumed ($6.40 + $4.50 + $11.00) is $9.00. If the unit cost of the shovel blade increases, the manufacturing adjustment item decreases to maintain a fixed cost of $21.00. There may only be one adjustment item within a manufacturing batch.

Review the Manufacturing > Processing a Batch > Processing a Batch for details on processing the batch.

Creating fixed Cost Finished Goods without inventory components

A Finished Goods item with a fixed cost can be created without using inventory components. Enter an item that is being manufactured and is classified as "Track Count" into the Finished Goods list. If the item does not have components, a single line will appear in the Items Consumed list as shown below:

1. Replace the existing line in the Items Consumed list with the raw materials or parts used to manufacture the Finished Goods. You must enter a minimum of one "no count" item into the Items Consumed list before you enable the Fixed Cost option.
   

2. Enable the Fixed Cost option on the Finished Goods line by clicking on the Fixed Cost column field. The following message will appear if there is a single item in the Items Consumed list that is classified as No Count:
   

3. Click on the OK button to continue. The following selection dialog will appear instead of the previous message if there are multiple "no count" items within the Items Consumed list:
   

4. Select the item that becomes the variable cost adjustment from one of the multiple "No Count" options by clicking on the drop-down option and selecting the item that is classified as Service or No Count. Click OK to continue. Note that only one "No Count" item can be designated as the variable cost adjustment item.