Saturday, September 6, 2014

Scrap Transactions - Where to Make them in Dynamics GP and Why

When should scrap transactions be entered, where and why?  Scrap Transactions can be processed in several places:
  1. MO > Component Transaction Entry - assigned to a particular work order.
  2. WIP > Time Card Entry - also assigned to a particular work order.
  3. Inventory > Transaction Entry - configure a Scrap and Damage Reason Code
I read a blog post about manufacturing transactions the other day - thank you Cowmaster!

The post uses the example of bread making, which I particularly like, because when I explain manufacturing concepts, I often use baked goods like cakes and cookies to cement core manufacturing concepts.  Recipes consist of two parts, a list of ingredients and instructions on how to combine and cook those ingredients - in short a Bill of Materials and a Routing Sequence...  but I digress.

One of Cowmaster's examples provided was a baker dropping an entire bag of flour while working on a particular work order.  Cowmaster wisely points out there are two choices in this instance.  Scrap the Raw Materials Inventory to the work order or scrap the materials independently.  Cowmaster's post called to mind a meeting in which the virtues of these two options were the subject of "lively" debate.

One camp was of the opinion, production problems resulting in scrap should always be included in the actual costs to produce finished goods, without regard to why they occurred.  The other camp felt strongly, if a production problem, especially a major one, which could affect any work order, just happened to occur while processing a particular work order, the costs should be accounted for independently.

My thoughts - a baker dropping an entire bag of flour, or knocking over a cart of dough or cooling baked goods, etc. is an event that could happen during normal processing of any work order, and should not be costed to a particular work order.  Assigning the entire bag as scrap to a work order seems more like creating a problem than solving one - a massive material variance, which has an obvious explanation, which will have the cost accountant chasing their tail later.

In this case, I believe the most accurate transaction would be to make a decrease adjustment for the damaged flour, with a Damage Reason Code in the Inventory Transaction window.

I have had at least one person I respect disagree with me privately - :)

Processing scrap transactions in GP comes with all the fun of disagreements about processes and cost accounting.  It also comes with with a several options to make those discussions more interesting, and not a few limitations to add fuel to the fire.  Here's a link to a community blog that sums up the limitations fairly well:

So, all that being said, if you can't find exactly what you are looking for in Dynamics GP, WilloWare has a scrap tool, which addresses the limitations noted above. 

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