Analyze the financial entries in make-to-order manufacturing

Think back to the last time you ordered a desktop computer online. You probably spent some time configuring your exact needs: the size of the monitor, the amount of memory, the hard drive space, the type of keyboard and mouse – the combinations seem endless!

Now consider your order from the computer hardware manufacturer’s perspective, let’s call them Widget Computers. Once you place your order, Widget needs to assemble your computer to your specifications. 

Let’s assume that Widget Computers had only one standard cost for the computer, regardless of the options chosen. This standard cost would need to be based on an “average” configuration. Translation: each time a customer orders a combination of options that is different from this average, Widget posts a variance, making it difficult to determine whether there are issues with manufacturing efficiencies, the quality of raw materials, or whether the variance is simply caused because you, the customer, selected a different option.

Using sales order item controlling, Widget Computers can create a standard cost for the exact combination of options that each customer chooses. This standard cost is stored on the sales order item; in this scenario, only true manufacturing variances are posted to the P&L.

In the session Analyze the financial entries in make-to-order manufacturing at the Controlling 2014 conference, you will learn how to configure the creation of this “standard” cost for a configurable item, and follow all accounting and controlling postings for such a make-to-order scenario, including period-end processing to ensure regulatory compliance.