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Process 211

Recall that a work center is associated with a cost center and includes
various activities, such as labor and setup. As these activities are consumed dur-
ing production and the times are confi rmed in the production order (e.g., labor
hours and setup hours), the costs associated with the activities are allocated to
the production order, which, as previously explained, serves as an accumula-
tor of costs. Note that there is no fi nancial accounting impact at this point. The
FI impact occurs when the shop fl oor employees are paid (e.g., weekly). At
this time the labor costs are assigned to cost centers associated with the work
centers where the employees completed the work. Thus, the cost centers are
accumulating labor (and other direct) costs. When a production order is con-
fi rmed, the cost centers are credited, and the production order that consumed
the labor is debited.
Finally, if the control keys in the last operation permit a goods receipt
to be automatically recorded, then this occurs when the last operation is con-
fi rmed. We discuss goods receipt in the next section.
In our example, a confi rmation is recorded for the 25 bikes. The labor
costs are debited to the production order, and the cost center where the work
was completed (work centers) is credited (Figure 6-30). The actual time (labor)
required to build the bikes was 775 minutes. Thus, the production order is
debited by $645.83, which is the total cost of labor at a previously established
hourly rate of $50 (775/60 * 50). Note that the bikes took 31 minutes each to
produce and therefore cost more than the planned amount. The production
order has accumulated a total of $15,633.33 for material and labor consumed.

Figure 6-30: Financial impact of a confi rmation

Demo 6.7: Confi rm production

GOODS RECEIPT
After production has been completed and confi rmed, the materials produced
are placed in fi nished goods inventory. This step is accomplished via a goods
receipt against the production order. Figure 6-31 highlights the elements of
the goods receipt step.

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