Manufacturing Process Costing –  Flow

1. Sales & Demand Initiation

• Create Sales Order
• Confirm demand for manufactured product

2. Bill of Material (BoM) Definition

Define detailed cost structure in BoM:

A. Standard Cost Components

• Direct Material Cost
• Direct Labor Cost
• Direct Overhead Cost

B. By-Product Cost Allocation (if applicable)

• Direct Material Cost (By-Product)
• Direct Labor Cost (By-Product)
• Direct Overhead Cost (By-Product)

Ensures accurate cost distribution across main and by-products

3. Manufacturing Order Creation

• Generate Manufacturing Order (MO) from Sales Order or manually
• Select Process Costing Accounting Template
  • Controls how accounting entries will be posted
  • Defines cost allocation logic

4. Work Order Execution

• Create Work Orders from MO
• Assign operations and work centers

5. Shop Floor Data Capture

• Record actual quantities (material, labor time, overhead usage) in Work Orders
• Data automatically updates in:
  • Manufacturing Order
  • Costing calculations

This ensures real-time actual costing vs planned costing

6. Process Costing Report Generation

• Print Process Costing Report
• Review:
  • Planned vs Actual Cost
  • Cost per unit
  • Stage-wise cost accumulation

7. Shop Floor Completion

• Finalize production:
  • Update actuals (materials consumed, labor hours, overheads)
  • Mark Work Orders as done
  • Close Manufacturing Order

8. Accounting & Cost Validation

• Review Accrual/Accounting Entries
  • WIP (Work in Progress)
  • Finished Goods valuation
  • Variance postings

9. Product Cost Update & Analysis

• Check Product Cost Price on product form
• Validate:
  • Actual Cost vs Standard Cost
  • Variance analysis

End Result

• Accurate process-wise costing
• Real-time shop floor tracking
• Proper financial impact (WIP → Finished Goods)
• Visibility on cost variances and profitability