Difference between revisions of "Manufacturing Accounting"
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When a manufactured product is [[Reverse Assembly|reverse assembled]] into its parts, the finished product is used as the raw material and its parts are obtained as the output products. | When a manufactured product is [[Reverse Assembly|reverse assembled]] into its parts, the finished product is used as the raw material and its parts are obtained as the output products. | ||
| − | Because the finished product usually has a higher value than the sum of its raw materials, it is not appropriate to re-stock the parts based on the value of the finished product. (Otherwise, scrap metal would be worth more if it came from a luxury car than from a toaster oven.) Instead, when the | + | Because the finished product usually has a higher value than the sum of its raw materials, it is not appropriate to re-stock the parts based on the value of the finished product. (Otherwise, scrap metal would be worth more if it came from a luxury car than from a toaster oven.) Instead, when the finished product is issued to be reverse-assembled, their value is removed from inventory, and the parts are added to work in progress (WIP) inventory using the following costs: |
| − | * If there is a standard cost available for the part, then it is added | + | * If there is a standard cost available for the part, then it is added to WIP inventory at the standard cost. |
| − | * Otherwise, it is added | + | * Otherwise, it is added to WIP inventory at the lowest cost which could be purchased from a supplier. |
| − | |||
* If none of these costs are available, then the system will receive it at a zero cost and log a warning message. | * If none of these costs are available, then the system will receive it at a zero cost and log a warning message. | ||
| − | After all the parts are | + | After all the parts are added to the WIP inventory, the difference between the value of all the parts and the original finished product would be charged off to a special "Manufacturing Cost Variance" account configured for your company. |
Revision as of 01:13, 6 November 2007
Accounting for Reverse Assembly
When a manufactured product is reverse assembled into its parts, the finished product is used as the raw material and its parts are obtained as the output products.
Because the finished product usually has a higher value than the sum of its raw materials, it is not appropriate to re-stock the parts based on the value of the finished product. (Otherwise, scrap metal would be worth more if it came from a luxury car than from a toaster oven.) Instead, when the finished product is issued to be reverse-assembled, their value is removed from inventory, and the parts are added to work in progress (WIP) inventory using the following costs:
- If there is a standard cost available for the part, then it is added to WIP inventory at the standard cost.
- Otherwise, it is added to WIP inventory at the lowest cost which could be purchased from a supplier.
- If none of these costs are available, then the system will receive it at a zero cost and log a warning message.
After all the parts are added to the WIP inventory, the difference between the value of all the parts and the original finished product would be charged off to a special "Manufacturing Cost Variance" account configured for your company.
