Production Cost

Production cost is the total value of all materials and resources used in the manufacturing process.

The production details page displays the cost of manufactured products. This is calculated based on:

• The product components specified at the time of creating or editing the production run

• The actual cost of materials that were consumed from inventory for this production

• The resource costs that were set at the time of creating or editing the production

FIFO Method

Since materials can be added to inventory at different prices, the FIFO (First In — First Out) method is used to calculate production costs. This means that materials are consumed in the order they were received in inventory: materials from earlier purchases are used first.

Example

Let's consider manufacturing chairs, where one chair requires one board.

Material purchases:

1. First purchase: 3 boards at $10 each = $30

2. Second purchase: 3 boards at $20 each = $60

Production plan: three batches of two chairs each

Cost calculation for each batch:

1. First batch: uses two boards from the first purchase

   • Cost per chair = $10

2. Second batch: uses one board from the first purchase and one from the second

   • Cost per chair = ($10 + $20) / 2 = $15

3. Third batch: uses two boards from the second purchase

   • Cost per chair = $20

Important: The “Chair” product details page will show a cost of $20 because it's calculated based on the price of the most recent material purchase.

Difference Between Planned and Actual Cost

1. Planned cost (in the product details):

   • Calculated based on current material prices

   • Shows expected production cost

2. Actual cost (in the production details):

   • Calculated based on the prices of materials actually used

   • Reflects the real expenses incurred during production

These values typically differ because material prices tend to increase over time. If prices remain constant, the planned and actual costs will match.