Costing Example to Assist in Understanding BOM Costing
Hello:
Let’say we are manufacturing a product call “Energize”.
The FINISHED product:
Energize is sold in the marketplace at a retail level.
In the BOM, Energize is the “high level”, fully assembled product which has an entry in the ICBillofMaterialListHeader table and also the ICItem123Master table.
The COMPONENTS of the product:
Energize is composed of the following components, none of which are in the Header table (Component item followed by the description)
(1) ENGRG: This is the raw good we use for “Energize”. It’s a powder.
(2) PLBOT: One plastic bottle
(3) LIDSMALL: One lid
(4) LABELEG: One preprinted label
(5) DES: One desiccant to preserve freshness
(6) NITRO: Nitrogen gas pumped into the bottle to prevent oxidation
(7) STKEG: One retail price sticker attached to the outside of the bottle
All the “components” have an entry in our Item table (ICItem123Master). The costing for all the components is derived dynamically by our purchase orders using the average cost method.
COSTING THE Master Item “Energize”:
When entering the data into the Bill of Materials screen of Adagio, there are two cost fields:
(A) Cost to Prorate
(B) Additional Cost
These two cost fields are actually stored in the table ICBillOfMaterialListHeader in fields with these names:
(A) Fixed Assembly Cost
(B) Variable Assembly Cost
From what I can tell, Adagio will compute the “Each” cost of Energize as follows:
(1) All the 7 components listed above will be added to the cost of Energize based on our costing method for those components (Let’s assume we use Average Cost for the components which changes each time we purchase and receive a component)
(2) Labor costs per bottle can be estimated and will be entered into the Additional Cost (Variable Assembly Cost) field of the Header record. Until modified, this is the cost that will “roll up” into the total cost of “Energize”.
(3) Packaging and shipping costs vary, so we “guess” at a standard cost per bottle which we use in the Additional Cost (Variable Assembly Cost) field of the Header Record.
(4) The estimated “per bottle” service contract costs on our bottling machine (pours the ingredients, puts lid on, etc.) will go into the “Cost to Prorate” (Fixed Assembly Cost) field, since it is a “Fixed” cost.
So there you have it. Is this a correct understanding of how Adagio works for costing?

I don't know about anyone else, but this is too hard to read.

Can you give us an example using real dollars, and only two components, not seven.

Steve

Steve:
I meant to delete this port. You are correct... impossible to read!! My bad!!

Hi Rich,

I understand your question. Most of your analysis is correct.

The fixed assembly cost is really your setup costs and clean up costs if applicable to setup the production run.

Your service contract cost as described is also a variable cost per bottle. While a fixed cost, it is a fixed cost per bottle.

Best,
Brian