If you do not understand cost roll-up, how can you calculate the correct standard cost? Production cost accounting is a very complex task in enterprise management. It requires accounting for the cost of all parts and components that make up a product, involving a large amount of master data and calculation logic. BOM-based cost roll-up is one way to calculate standard costs.

Master data preparation

To calculate costs, a large amount of master data must be prepared. In the product cost calculation process, in addition to BOM data, other master data is also required, mainly including the following types:

1. Parts and component data

This covers basic information for all parts that make up the product, including part code, part name, unit of measure, part category, batch quantity, production cycle, and so on.

Production cycle data can be directly used for cost calculation when process data is incomplete. If process working-hour data for corresponding parts can be established, total process working hours for parts can be calculated through process aggregation and used to calculate direct labor costs for parts.

2. Raw material data

This includes raw material codes, names, specifications, standards and technical conditions, material prices, and material quotas. For self-made parts, it is necessary to determine how much raw material is needed to manufacture a single part, that is, the part material quota. Multiplying the part material quota by the material price gives the corresponding direct material cost. Purchased finished parts can be handled according to the same material cost calculation method.

3. Process data

According to actual conditions, the main processes for parts and the corresponding batch preparation hours and single-piece processing hours can be provided, thereby calculating working hours for self-made parts. Planned hours, quota hours, and current hours can be established and used to calculate planned costs, standard costs, and actual costs respectively. This is the direct basis for calculating labor costs.

4. Work center data

This mainly provides the hourly wage rate of the production and processing department, namely the value of each working hour. Different work centers have different job types, equipment, and technical content, and their hourly unit prices are also different.

5. BOM data

All the above data can take effect only when included in a certain product structure. The overall composition of a product is established through product structure data. Through parent part numbers, child part numbers, and single-level quantities, namely the quantity of a child part required to assemble one unit of the parent part, the matching relationships and quantities of all material items that make up the product are determined. The actual calculation quantity of each raw material, finished product, and part is based on the single-level quantity in the product structure. Product structure data must reflect the required product assembly relationships. Otherwise, the overall master data loses its meaning.

Cost roll-up logic

Product cost data generally includes direct labor costs, mainly based on part processing hours, and direct material costs, including raw materials and purchased finished parts, and uses them as the basis for calculating management costs and other indirect costs, which participate in calculations by entering adjustment coefficients or calling related calculation formulas.

The logic of cost roll-up starts from the lowest level of the product structure. It first calculates labor costs, material costs, and management costs at the current level, and then determines the total cost of each part or component at that level. When calculating the cost of each level, the single-level quantity of that level must be considered. Preparation hours are based on batch production, so in actual calculation, preparation hours should be calculated separately and not multiplied by the single-level quantity. After the cost calculation at the current level is completed, it is gradually accumulated to the upper-level components until the cost of the final product is determined. Each level of cost consists of material cost, labor cost, and management cost.

The main calculation formulas are as follows:

Current-level cost = material cost + labor cost + management cost;

Material cost = material unit price * single-level quantity;

Labor cost = hourly unit price * (process processing hours * single-level quantity + process batch preparation hours);

Management cost = (material cost + labor cost) * coefficient;

Roll-up cost = sum of lower-level costs + current-level cost.

In the key field of enterprise cost management, Soonfor Software empowers the standard cost calculation process with professional strength. It can accurately analyze various cost elements, help enterprises grasp the pulse of costs, and optimize resource allocation. With Soonfor Software, enterprises can efficiently calculate accurate standard costs, strengthen the foundation for cost reduction and efficiency improvement, and start a new journey of steady development.
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