What is Costing Lot Size?
Costing Lot Size affects the computation of Standard Cost for Setup Cost. When adding a Costing Lot Size above or below 1 the system uses this information to calculate what is they should be standard per Quantity.
Costing Lot Size can be set up if the user uses Standard Costing and Manufacturing Routing and Work Center, the Costing Lot Size field appears on the assembly item record’s Locations subtab. The default value for this field is 1, and the minimum value for this field is 0.01. This information can be added by Item Record by Location.
Note that Costing Lot Size can be applied to both Machine and Labor Setup Cost.
Theo’s cupcakes New York Branch normally need 2 hours for them to prepare the machine, ingredients, and clean everything. This process always occurs each time they create 250 cupcakes. Theo is aware that sometimes it took less than or more than 2 hours for them to set up everything depending on the employee working on the said shift. She decided that she wants to Account and calculate her savings or additional costs for each batch (250 cupcakes) made when preparing the machine and ingredients. The hourly rate of her Employee is $25 per hour.
As advised by her consultant, she can maximize Costing Lot Size to set the standard in relation to the Set-up Time Cost incurred for its Machine based on the following details provide:
- Set-up Time: 2 hours
- Cost per hour: $25
- Cost per minute: $0.41667
- Number of Cupcakes per Batch: 250
When we set up on NetSuite, we can add 250 as Costing Lot Size and the Manufacturing Routing has a setup time of 120 minutes.
Assuming it took 180 minutes for Theo’s Employee to setup the Machine and to produce 248 cupcakes. The Variance which resulted from this batch amounting to $25.40 that would be added (debited) on her Cost of Goods Sold Variance Account.
Below is the basis of the computation:
- Actual Hours Consumed: 1.5 hours
- Actual Minutes Consumed: 180 minutes
- Completed Quantity: 248 cupcakes
- Standard Setup Time (Manufacturing Routing): 120 minutes
- Costing Lot Size: 250
- Hourly rate: $25
- Standard Setup Cost per Quantity: 0.20
** (2 hours x 25) / 250
Note that since it is hourly rate, we converted the Minutes to Hours.
- Variance: $25.40
* Hourly Rate x Actual Hours (180 mins /60)
** Completed Quantity x Standard Setup Cost per Quantity