How to Cost Setup Time for Batch Manufacturers Using Dynamics 365 Business Central
You may know that production run time in Dynamics 365 Business Central can be costed with proper configuration, but did you know you have the option to cost setup time as well?
In this blog, you will learn more about costing set time, and tips and tricks to properly configure it to accurately predict these costs.
Enabling Setup Costs in Production
Including setup time in production costing is controlled by a toggle located on the Manufacturing Setup page in Business Central called “Cost Incl. Setup”. When enabled, setup time on a routing will be included in the expected cost and standard cost calculations and will carry a cost in the capacity ledger entries of a production order.
Configuring Setup Rates
Setup costs use the same capacity rates as run-time costs. These are configured on the Work Center or Machine Center.
- Direct Unit Cost is the cost to run the work center or machine per the Unit of Measure Code configured.
- Indirect Cost % allows you to add a percentage to the Direct Unit Cost
- Overhead Rate allows you to add a flat amount to the Direct Unit Cost
- Business Central calculates the Unit Cost, which represents the total Direct Cost with the Indirect Cost % and Overhead rate included.
Pro Tip: Use the Lot Size Field on the Item Card to Spread Out Setup Costs
The biggest issue I see batch clients face when enabling setup costs is that the full setup cost is included when reviewing BOM Cost Shares and calculating standard costs in Business Central. This assumes the total setup time configured on a routing is needed for one unit. This might be true for a discrete manufacturer but is problematic in batch.
As an example, in the screenshot below, the routing for this item is configured for one hour of setup time, and two hours of run time. You can see in the BOM Cost Shares that a total of three hours of labor is predicted for one unit. The direct cost for the work center is $14 per hour, giving us a total direct cost of $42.
To remedy this, on the Replenishment FastTab of the item card, you may enter a typical lot size for the item. This will spread the setup cost time to a “per unit” amount.
By entering a lot size of ten, the cost of one hour of setup has been reduced from $14 to $1.40. Added to our two hours of run-time, our total direct Capacity costs are reduced to $29.40.
Questions about Manufacturing Costing in Business Central? Talk to the Stoneridge Experts!
Stoneridge Software helps batch manufacturers in the Food, Chemical, and Pharmaceutical industries find comprehensive solutions to enable their business.
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