Product costing

Why is used in Polymer:

1. Possibility to analyze CM per sales order (cost of sales accounting)
2. Analyze efficiency / use of production facilities
3. Determining cost prices per material, which are fixed for the month.

Basics
Cost of production unit
Production unit (PU) has fixed manufacturing costs (FMC) per year, independent of the actual use of the PU. This
is total FMC as defined in current accounting.

Determination of quantity in routing

In the routing is stated how much machine hours are needed for the production of a base quantity (1.000 kg) of the
specific material. In Deventer plant this is determined by the quantity (in kg) that can be processed in one hour.
This is a figure stated in the certified production description of every product. In ANA this would be the amount of
KG per batch divided by the processing time of the batch.

Normal capacity of production unit

PU has a normal capacity, which is defined as the maximum capacity in case of an unlimited supplies for
production (raw materials, electricity etc.) taking in to account down times for maintenance etc (efficiency factor) In
other words it is independent of other restriction, which we encounter in a real life production situation. The
determination of the normal capacity in Deventer plant is calculated as follows:
1.
2.

Net amount of production time available for the production unit per year = Amount of hours production per
week x efficiency rate of PU x production weeks a year
Normal capacity is the net amount of time (in hour) x quantity (kg) per hour.

NOTE: The actual production quantity in the past or the planned production quantity in the future are not relevant
in this calculation. It is the maximum capacity that could be achieved, given all other requirements are met.

Tariff of Machine hour

In order to calculate the tariff of one machine hour:
1. Take the FMC of the production unit
2. Divide FMC by the normal capacity

Labor hours
The calculation of labor costs is identical.
Calculation Deventer:
1. Net quantity of hours = number of Employees * Net quantity per employee (related direct/indirectly to
production) (= total of working hours in a year holidays, illness and special free days.)
2. Routing quantity = net Qty of labor hours / normal capacity * 1.000 kg.
3. Tariff labor = total labor cost (FMC only) divided by net QTY of labor hours per year.
For ANA this calculation can be made by:
1. Estimation of labor quantity needed for normal capacity
2. Estimation of labor costs related to labor quantity as calculated in 1
3. Routing value = 1 diviided by normal capacity * 1.000 kg
4. Tariff is 1 divided by 2

ANA implications
Above explanation helps to answer the two outstanding questions:
1. Does the total capacity of the PU of CP/E/OLEA/CPS/ERUA/ES include the capacity of OLEA?CPS?ERUA?
ES or not?
2. How to allocate FMC to two work centers (PU1 = CP/E/OLEA/CPS/ERUA/ES, PU2 = ROA, REA)

Answer 1:
The normal capacity used for the calculation of the cost price of each material should be based on the maximaal
output of only that material. This is independent of the fact that OLEA that is produced on the same PU is used for
this production. The normal capacity of OLEA should be based on the producing time of OLEA in relation to the
total production time. So the OLEA production should be calculated separately from the CP and not be included.
An other way of looking at it is the following:
All OLEA is used in CP material. So suppose the total output of CP is 5.000.000 kg. For this output we used
1.000.000 kg of OLEA (produced on the same PU). So the PU actually has produced 5+1=6.000.000 kg. When we
would not use OLEA we could produce more CP because of extra free capacity.
Example:
Production time:
continuously production, only shut down for vacation 10 days:
So 365-10=355 days x 24 hours = 8.520 hours production time x efficiency factor (95%) = 8.136 hours.
Normal capacity CP:
14.500 kg per 18 hours => 1,24 hours per 1000 kg (entry in routing) = 805,56 kg / hour
Normal capacity = the net amount of production time (in hour) x quantity (kg) per hour.
Normal capacity = 8.136 hours * 805,56 kg/hours = 6.554.000 kg CP per year
Normal capacity OLEA:
Suppose: 10.000 kg per 18 hours => 1.8 hours per 1000 kg (entry in routing) = 555,56 kg / hour
Normal capacity = the net amount of time (in hour) x quantity (kg) per hour.
Normal capacity = 8.136 hours * 555,56 kg/hours = 4.520.000 kg OLEA per year.
Normal capacity ROA:
Suppose the net amount of production time (in hour) is bit less due to more maintenance (is lower efficiency
factor): 8.520 * 90% = 7.668 hours
Suppose: 1.000 kg per 10 hours => 10 hours per 1000 kg (entry in routing) = 1000 kg / hour
Normal capacity = the net amount of time (in hour) x quantity (kg) per hour.
Normal capacity = 7.668 hours * 1.000 kg/hours = 7.668.000 kg OLEA per year.

Answer 2:
When using two Production units, the calculation are the same as above. Only differneces is that an allocation of
the production unit costs must be made in the cost price calculation. In the example below it means that the cost of
the total PU (=PU1 and PU2) should be split to the two production units.
Example:
One production unit: 100.000 euro to be divided by normal capacity of CP etc
Two production units:
PU1 carries 80% of costs = 80.000 to be divided by normal capacity of CP, respectively E, etc
PU2 carries 20% of costs = 20.000 to be divided by normal capacity for ROA respectively REA production.

Example calculation:
Product Costing
total
PU costs
norm. capacity
mat a
norm. capacity
mat b

100.000 euro/year
1.000 kg
500 kg

cost price
cost price

mat a
mat b

100.000 divided by
100.000 divided by

selling pr
selling pr

mat a
mat b

200 eur/kg
300 eur/kg

mat a
mat b

800 kg
200 kg

1.000 =
500 =

actual
production

Production cost
center
actual cost
recoveries
Effic. Result

(80.000)
(40.000)
(120.000)

100.000
(120.000)
(20.000)

P/L
sales
mat a
mat b

(160.000)
(60.000)
(220.000)

COGS
mat a
mat b

80.000
40.000
120.000

Cont.Marg.*

(100.000)

* (FMC + Var)

Effic. result
actual cost
recoveries

100.000
(120.000)
-

Gross Margin
compare with:
revenu
actual cost
result

(20.000)
(120.000)

(220.000)
100.000
(120.000)

100 eur/kg
200 eur/kg