This related topic illustrates how burden is calculated and applied to expense and asset inventory in Costpoint. The procedure for calculating and applying burdened costs involves both the valuation of average actual inventory when burden needs to be applied, and how the General Ledger is updated when inventory burdened costs are transferred, issued, or adjusted.
The project/accounting subsystems perform most of the General Ledger burden updates for both asset and expense inventory charges, including processing charges such as accounts payable vouchers, most inventory transactions and time charges, and capitalizing burden to raw materials and Work in Process (WIP) accounts. The Inventory, Accounts Payable, and Labor Distribution Journals post the direct costs to a project/account/organization. If the account/organization is part of the base of a burden pool, the Burden Rate Process calculates the necessary burden rates and allocation amounts for the pool (see related topic, Burden Rates Processing).
You must run the process on the Compute Inventory Burden Rates screen to calculate the actual and target YTD burden rates for all inventory account/organizations and, for inventory, those account/organizations found in inventory abbreviations. In turn, these rates populate an Inventory Burden Summary table, where they are used to calculate burden amounts for inventory parts based on the inventory abbreviation account/organizations in which they are charged. The actual and target YTD burden rates are used to:
Value inventory upon receipt (if raw material is to be burdened at receipt)
Value finished goods parts upon relief on a Manufacturing Order
Recalculate burden when certain transfers occur
Periodically calculate WIP variance
Depending on the type of inventory abbreviation being affected, running the Post Inventory Journal screen in Costpoint Inventory can post burden dollars for the following transactions:
Manufacturing Order Reliefs (in Costpoint Production Control)
Inventory Transfers (in Costpoint Inventory)
Inventory Issues and Adjustments (in Costpoint Inventory)
In all cases, only transactions involving asset inventory abbreviations can cause burden dollars to affect the General Ledger in the Inventory Journal process.
Use the Configure Inventory Accounts screen in Costpoint Inventory to establish default adjustment and scrap inventory account/organizations for allocated and common inventory. On this screen, you can also specify either Target Rates or Actual Rates as the default for calculating inventory burden amounts. You can also select the method for burdening raw material inventory when issued or received as well as the default account/organization where all asset raw material burden variance will be posted.
On the Manage Inventory Projects screen, select the method that will be used to calculate the value of inventory for a project when you post transactions to the General Ledger. Use the Inventory Abbreviations subtask to establish inventory abbreviations and assign them to project/account/organization combinations. For each inventory abbreviation, select the Acct Type (Asset or Expensed) and Inv Type (Raw Materials or Finished Goods) so that inventory transactions can be posted to the General Ledger and any appropriate burden costs can be allocated to inventory.
This section explains what happens when you compute inventory burden rates for the following:
Expense inventory abbreviation account/organizations
Asset inventory abbreviation WIP account/organizations
Raw material inventory abbreviation account/organizations, if applicable
In order to populate inventory burden rates, run the Compute Inventory Burden Rates utility in Costpoint Projects. Use the Manage Inventory Projects screen in Costpoint Inventory to assign inventory abbreviations, organizations, and accounts for expense WIP burden, asset WIP burden, and raw material burden to inventory projects.
In Costpoint Cost and Revenue Processing, include burden amounts in the value of inventory by including expense inventory abbreviation account/organizations in the base of the burden cost pools. Next, run the Compute Inventory Burden Rates screen to populate the inventory rates.
Burden applied to manufacturing orders (MOs) for expense inventory abbreviations is included for average actual inventory valuation only. The inventory abbreviation forces WIP and finished goods (FG) account/organizations to be the same for each cost element on an expense finished goods inventory abbreviation, so that no posting of direct or burden dollars will be done when the MO is relieved, unless it is relieved to a different expense inventory abbreviation than what it was built on. In this case, only the direct costs will be posted.
In Costpoint Cost and Revenue Processing, include burden amounts in the value of inventory by including asset inventory abbreviation WIP account/organizations in the base of the burden cost pools. You will also need to run the Compute Inventory Burden Rates process in Costpoint Cost and Revenue Processing in order to process and populate the inventory rates, as burden is capitalized as charges are made to the WIP account/organizations. The Inventory Journal process does not need to capitalize WIP.
Burden applied to Asset MOs is included for average actual inventory valuation, but is also credited to the MO WIP asset relief account/organization when these items are relieved. This account/organization combination is defined for each inventory project on the Accounting tab of the Manage Inventory Projects screen in Costpoint Inventory.
The Raw Material Burdening option is defined on the Configure Inventory Accounts screen in Costpoint Inventory. Raw material burdening can be disabled, applied upon receipt/acceptance, or applied when material is issued.
If raw material is burdened on receipt, you must also include burden amounts in the value of inventory by including the raw material's inventory abbreviation material account/organization in the base of the burden cost pools. Cost Pools are set up in Costpoint Cost and Revenue Processing, and you can access raw material inventory abbreviation material accounts/organizations (Material Account and Material Organization fields) in the Inventory Abbreviations subtask of the Manage Inventory Projects screen.
If raw material is burdened upon issue, Costpoint calculates burden costs for material (if the WIP material account/organization has been set up to be burdened) when charged to an MO and includes that cost in the MO.
Whether or not raw material is burdened upon receipt or issue, running the Compute Inventory Burden Rates process capitalizes the allocated burden material costs to the proper account/organization. If raw material is burdened at receipt, Costpoint will need to credit the raw material asset contra account/organization with direct costs and allocated burden when asset material is issued to a charge number, sales order, or manufacturing order. This account/organization combination is defined for each inventory project on the Accounting tab of the Manage Inventory Projects screen in Costpoint Inventory.
If you plan to set up multiple asset inventory projects, you can set up default MO WIP asset relief and raw materials asset contra accounts and organizations on the Configure Default Project Inventory Accounts application in the Inventory Controls menu of Costpoint Inventory.
This section explains what happens when burden rates are applied to inventory for manufacturing order relief issues (in Costpoint Production Control), inventory transfers (in Costpoint Inventory), inventory issues (in Costpoint Inventory), miscellaneous receipts (in Costpoint Receiving), inventory adjustments (in Costpoint Inventory), and Purchase Order (PO) receipts and Quality Control (QC) inspections (in Costpoint Receiving). Use the Post Inventory Journal screen to apply burden rates to inventory.
On a positive quantity relief, the Enter Manufacturing Order Reliefs screen in Costpoint Production Control determines burden costs for each direct cost element using the Inventory Burden Summary table to determine the proper rates for each direct cost element's account/organization. The MO's build-to inventory abbreviation is assigned on the Manage Manufacturing Orders screen, and its WIP account/organizations will be used to look up the rates in the Inventory Burden Summary table. The burden costs may or may not be posted in the Inventory Journal process, depending on the situations below:
Asset to Asset
This section discusses relieving an MO from an asset build-to inventory abbreviation (the default MO build-to inventory abbreviation has an Acct Type of Asset in the Inventory Abbreviations subtask on the Manage Inventory Projects screen) to an asset finished goods inventory abbreviation.
You must have previously set up cost pools on the Manage Cost Pools screen in Costpoint Cost and Revenue Processing so that any burden applied to asset inventory is assigned to the WIP account/organization combinations on the default build-to inventory abbreviation, rather than the finished goods account/organizations. Costpoint uses the Inventory Burden Summary table to calculate burden amounts for each direct cost element using the asset build-to inventory abbreviation's WIP accounts/organizations. The sum of direct and burden costs is debited to the finished goods inventory abbreviation's accounts/organizations and is credited to the build-to inventory abbreviation's WIP asset relief contra account/organization through the Inventory Journal process. This posting occurs even if the allocations to the finished goods and build-to WIP inventory abbreviations are the same. Raw material costs are not burdened if raw material burdening is not done at issue. Costs from finished good inventory issued to the MO are credited to the direct cost element's WIP account/organization to prevent the base accounts from being double charged.
Asset to Expense
This section discusses relieving an MO from an asset build-to inventory abbreviation to an expense finished goods inventory abbreviation (the relief inventory abbreviation has an Acct Type of Expensed in the Inventory Abbreviations subtask of the Manage Inventory Projects screen).
Costpoint uses the Inventory Burden Summary table to calculate burden amounts for each direct cost element (excluding costs from already burdened subassemblies or components) using the asset build-to inventory abbreviation's WIP accounts/organizations. The Inventory Journal process credits all direct and burden costs to the build-to inventory abbreviation project's WIP asset relief or RM contra account/organization and debits the allocation finished goods inventory abbreviation's account/organizations. Applied burden is posted to the corresponding direct cost element's account/organization. Again, cost pools must be previously set up on the Manage Cost Pools screen of Costpoint Cost and Revenue Processing so that if any burden is applied to the asset inventory WIP account/organization combination, it will not be assigned to the finished goods expense account/organization. Raw material costs are not burdened if raw material burdening is not done at issue. Costs from finished good inventory issued to the MO are credited to the direct cost element's WIP account/organization to prevent the base accounts from being double charged.
Expense to Expense
This section discusses relieving an MO from an expense WIP inventory abbreviation to an expense finished goods inventory abbreviation, where the default MO build-to inventory abbreviation has an Acct Type of Expensed in the Inventory Abbreviations subtask of the Manage Inventory Projects screen.
Costpoint uses the Inventory Burden Summary table to calculate burden amounts for each direct cost element using the default build-to WIP inventory abbreviation's account/organizations. If the WIP and finished goods inventory abbreviations are different, the direct cost relieved amounts are posted. Burden dollars are not posted. The project/account system recalculates and reallocates burden for the expense account/organizations.
Expense to Asset
This combination, when relieving from an expense WIP inventory abbreviation to an expense finished goods inventory abbreviation, is not allowed for manufacturing orders.
Expense to GFM
This section discusses relieving an MO from an expense WIP inventory abbreviation to a GFM finished goods inventory abbreviation. This may occur for a customer repair MO.
Costpoint uses the Inventory Burden Summary table to calculate burden amounts for each direct cost element using the build-to inventory abbreviation's account/organization. No direct or burden dollars are posted for these reliefs.
When you transfer burdened material from one inventory abbreviation to another on the Enter Inventory Transfers screen in Costpoint Inventory, and one or both of the inventory abbreviations use average actual costing, the Inventory Journal may post the burdened amount to the General Ledger. The inventory burden cost elements also may be moved to the direct cost elements as part of recalculating the average actual costs. Below is a list of scenarios where the From and To inventory abbreviations on the Enter Inventory Transfers screen have expense or asset account types for a Standard, Borrow, and Payback transfer types are also discussed at the end of the section.
Expense to Expense
When you make standard transfers from an expense finished goods/raw material inventory abbreviation to another expense finished goods/raw material inventory abbreviation, the burden amounts are recalculated using the Inventory Burden Summary table rate for the To inventory abbreviation's account/organizations. The calculated burden amounts are kept in the burden cost elements of the To inventory abbreviation when recalculating average actual costs. Burden dollars are not posted.
Asset to Asset
When you make standard transfers from an asset finished goods/raw material inventory abbreviation to an expense finished goods/raw material inventory abbreviation, the burden dollars are pulled from the From inventory burden costs. The burden costs are rolled into the direct cost elements in the To inventory abbreviation's inventory record when recalculating average actual cost. Even though the costs are rolled into the To inventory abbreviation's direct cost elements, the inventory transaction lines will still store the burden amounts in the burden cost element columns. The To inventory abbreviation's burden costs will be re-averaged for the updated quantity but using zero transfer burden costs. During posting, the burden costs are debited to the To inventory abbreviation's direct cost account/organizations (labor burden is posted to the labor account/organization, and so on) and are credited to the From inventory abbreviation's direct cost accounts/organizations.
Asset to Expense
When you make standard transfers from an asset finished goods/raw material inventory abbreviation to an expense finished goods/raw material inventory abbreviation, the burden dollars are pulled from the From inventory burden costs. The burden costs are rolled into the direct cost elements in the To inventory abbreviation's inventory record when recalculating average actual cost. Even though the costs are rolled into the To inventory abbreviation's direct cost elements, the inventory transaction lines will still store the burden amounts in the burden cost element columns. The To inventory abbreviation's burden costs will be re-averaged for the updated quantity but using zero transfer burden costs. During posting, the burden costs are debited to the To inventory abbreviation's direct cost account/organizations (labor burden is posted to the labor account/organization, and so on) and are credited to the From inventory abbreviation's direct cost accounts/organizations.
Expense to Asset
When you make standard transfers from an expense finished goods/raw material inventory abbreviation to an asset finished goods/raw material inventory abbreviation, the burden dollars are pulled from the From inventory burden costs. The burden dollars are kept in the burden cost elements in which they were originally recorded when recalculating average actual cost. During posting, the burden costs are debited to the To inventory abbreviation's direct cost account/organizations (labor burden is posted to the labor account/organization, and so on) and are credited to the From inventory abbreviation's direct cost accounts/organizations.
Borrow Transfers
All transfers with a Transfer Type of Borrow will have burden derived similar to Standard inventory transfers. The burden dollars are kept in the burden cost elements in which they were originally recorded when recalculating average actual cost. The burden dollars are not posted.
Payback Transfers
All transfers with a Transfer Type of Payback will recalculate the average actual cost for the burden amounts by using the payback reservation line's direct cost (that is, original borrow direct cost) and current burden rate for the current To (originally From) inventory abbreviation's account/organizations. The burden dollars will be kept in the burden cost elements in which they were originally recorded when recalculating average actual cost. Payback transfers will also recalculate the average direct and burden costs for the current From (originally To) inventory abbreviation using the same logic as during the Borrow transfer, but with quantities reduced by the payback quantity. The burden dollars will not be posted for Payback transfers.
This section describes the scenarios that apply when you use the Enter Issues to Project/Account/Org or PO screen in Costpoint Inventory to issue inventory from expense, finished goods asset, and raw materials asset inventory abbreviations.
From Expense
Positive issues from expense inventory abbreviations do not post burden amounts to the General Ledger, regardless of the To project/account/organization combination. The burden cost elements are recorded on the inventory line for reference purposes.
From Finished Goods Asset
Positive issues from finished goods asset inventory abbreviations have their direct and burden costs debited to the To inventory abbreviation or charge number. If inventory is issued to an inventory abbreviation, the direct and burden costs of each element are posted to the inventory abbreviation's account/organization for that cost element. If inventory is issued to a MO, the WIP account/organizations are debited. The From inventory abbreviation's accounts/organizations are credited for the direct and burden costs by cost element.
From Raw Material Asset
For MO Issues, if raw materials are burdened at issue, the raw material inventory abbreviation's material and subcontracts costs are burdened in MO WIP calculations and upon relief. For all other issue types, the project burdening process handles the burdening of the direct costs.
For negative issues, reverse the debit and credit amounts listed above.
This section describes the scenarios that apply when you use the Receive Miscellaneous screen in Costpoint Receiving.
To Finished Goods
If the quantity being increased is going to an inventory abbreviation with an Inv Type of Finished Goods and an Acct Type that is not GFM (as selected in the Inventory Abbreviations subtask of the Manage Inventory Projects screen), the value of the burden amount for any non-zero direct cost element is computed, and that calculated burden is included when recalculating average actual cost for that inventory. The Inventory Journal does not post burden amounts.
To Raw Materials - Burden on Receipt
If the quantity being increased is going to an inventory abbreviation with an Inv Type of Raw Materials and an Acct Type that is not GFM (as selected in the Inventory Abbreviations subtask of the Manage Inventory Projects screen), and if raw materials are to be burdened upon receipt, the value of the burden amount for any non-zero direct cost element is computed, and that calculated burden is included when recalculating average actual cost for that inventory. The Inventory Journal does not post burden amounts.
To Raw Materials - Burden on Issue/No RM Burdening
If the quantity being increased is going to an inventory abbreviation with an Inv Type of Raw Materials (as selected on the Inventory Abbreviations subtask of the Manage Inventory Projects screen) and if raw materials are not to be burdened or burdened upon issue, burden costs of the transaction line will be zero. The Inventory Journal does not post burden amounts.
This section describes the scenarios that apply when you make an inventory adjustment (that is, Quantity, Scrap, or Cost) in the Adjustments menu of Costpoint Inventory.
From Expense
Adjustments from expense inventory abbreviations are not posted as burden to the General Ledger, regardless of the To project/account/organization combination. The burden amounts are recorded on the inventory line for reference purposes.
From Asset
For negative adjustments, the direct and burden costs are credited from the "From" inventory abbreviation cost element's project/account/organization. The charge to P/A/O/inventory abbreviation is debited. Credits/debits will be reversed for positive adjustments.
If a purchase order is received to a raw materials inventory abbreviation and if raw materials are to be burdened upon receipt, the inventory burden rates for that PO receipt are looked up using the raw material inventory abbreviation's account/organizations when the inventory average actual unit cost is recalculated (depending on the Inventory Recognition Point on the Configure Inventory Settings screen). The appropriate burden rate is multiplied by the direct costs to determine the burden amount. The burden amounts for that receipt are used when recalculating the burden cost elements' average actual cost. If raw material is burdened on receipt, inventory projects with asset raw material inventory abbreviations should have a capitalized burden account/organization, which is assigned on the Manage Inventory Projects screen. Projects with finished goods expense inventory abbreviations or raw material expense inventory abbreviations should have an allocation clearing account/organization, which is also assigned on the Manage Inventory Projects screen. No inventory posting of burden dollars will be caused by a PO receipt or QC inspection.
If a PO receipt or QC inspection is modified so that the inventory quantity is reduced, the original transaction burden element cost is used when recalculating average actual costs. If the reversing adjustment would cause the average actual cost of a burden cost element to be negative, the cost element is set to zero instead.
Below is an outline of general business rules that apply to the Inventory Burden process:
Manufacturing orders built under an expense inventory abbreviation cannot be relieved to an asset inventory abbreviation.
Asset finished goods inventory abbreviations must use separate account/organization combinations for their regular cost elements instead of their WIP cost elements.
Expense finished goods inventory abbreviations must use the same account/organization combination for both the regular and WIP cost element account/organization combinations.
For asset finished goods inventory abbreviations, only the WIP cost element account/organizations should be part of cost pool base accounts (see the Pool Base subtask of the Manage Cost Pools screen in Costpoint Cost and Revenue Processing). To prevent the costs from being burdened twice, do not burden the regular cost element account/organizations.
To prevent the over burdening of costs, do not perform transfers/issues/reliefs from burdened asset material to account/organizations or inventory abbreviations with account/organizations that are part of a cost pool burden base.
If the you burden on receipt in Costpoint Inventory and you want to ensure burden is not applied twice, Asset Raw Material and Asset Finished Goods (if material is purchased directly to the finished goods inventory abbreviation) Inventory Abbreviations' Material Account/Organizations should be part of a cost pool base, but any Finished Goods Inventory Abbreviations' WIP Material Cost Account/Organization should not be part of a base. If you burden on issue, the Asset Raw Material and Asset Finished Goods (if material is purchased directly to the finished goods inventory abbreviation) Inventory Abbreviations' Material Account/Organizations should not be part of a cost pool base, but Finished Goods Inventory Abbreviations' WIP Material Cost Account/Organization can be part of a base. Set up the pool base in the Pool Base subtask of the Manage Cost Pools screen in Costpoint Cost and Revenue Processing.
GFM material can be burdened in the MO if you burden on issue.
Inventory projects that have asset finished goods inventory abbreviations are required to have the following two account/organizations.
Contra WIP Acct/Organization — This account/organization will be credited when amounts are relieved from that inventory project's MO.
WIP Variance Acct/Organization — This account/organization will be debited or credited to post any differences between amounts charged and amounts relieved to an asset inventory abbreviation MO.
If raw material is burdened on receipt, inventory projects with asset raw material inventory abbreviations should have a capitalized burden account/organization.
Projects with expense finished goods inventory abbreviations or raw material expense inventory abbreviations (if raw material is burdened on receipt) should have an allocation clearing account/organization.