AR - Gross Margin Calculation Error(s)

DISCLAIMER
This is a copy/paste from an e-mail that was sent to me from my CFO. I’ll admit that most of it went over my head. We opened a case with Epicor, and their official response was to contact a consultant. I am not sure why we would need a consultant to answer a question about the SGM report…
/DISCLAIMER

We’re in the process of taking a deep dive into the costing of Epicor and have discovered that how we envision Epicor costing (Sales Gross Margin Reporting) is not what is actually taking place.
We can certainly identify that the Production Detail Reports reflect the output on the Sales Gross Margin Report, but wondering if there is a fix to what we’re seeing.

The concern is that if a top level part, being sold/delivered directly from WIP, goes more than a layer deep with regards to components, any components beyond the 2nd tier are reported as “Material Cost” as opposed to seeing the actual make up or breakdown of the cost components. As an example:

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Assuming the top level part and each of the components below such are composed of Labor, Burden, Materials and Subcontracting, the SGM Report, as well the Production Detail Report, will break out or detail the cost for each of those components for 1) Top Level and 2) Both Level 1 Components, however, the two Level 2 Components will only be reflected as “Material” despite requiring those other components.

  • Is there a setting within Epicor that will allow us to capture those details for all components beyond Level 1?
  • Note that within our production, we don’t ‘link’ custom component jobs to the Top Level, regardless of the depth of the manufacturing requirements. That includes those at Level 1. Our process is and has always been to move components in and out of inventory. If we change our job structure/flow and link ‘custom components’, would that provide us what we’re seeking regardless of the depth they travel?

We have examples of the research we did to support our conclusion and can share if necessary, however, I trust you’re deeply familiar with this topic. I’m hoping that there simply a box to be checked within Epicor settings that will resolve this costing concern, but won’t hold my breath for such. If I were a betting man, I’d put my money on the fact that changing our process (bullet 2) will have a better chance of getting us what we desire.

@jhecker There is. Also very important to get all material issued timely and all subs issued to top level jobs BEFORE they are shipped or put into stock. Any cost added even one second later will go to a MFG Variance account rather than to gross margin.

You will find this under the following location in your ERP System
System Setup
Company/Site Maintenance
Company Configuration
Now choose the following TABS
Modules TAB
Production TAB
Job TAB
Under the Issued Manufactured Materials section the option for Enable Mfg Cost Elements is listed and available to choose.

Enable Mfg Cost Elements
Use the Enable Mfg Cost Elements check box to activate the alternate Split Cost Elements job estimate calculation.
This calculation provides more detailed job cost analysis by totaling the costing buckets independently throughout the method of manufacturing on each job.
It then arrives at separate material, labor, burden, subcontract, and material burden (if used) total cost values for the highest level assembly.
In contrast, the default job estimate calculation totals all the costing buckets on each assembly in the material bucket, then adds this material value to the material cost bucket on the next level assembly. This process continues throughout each level in the method of manufacturing.
Important: Any jobs created before you select this check box continue to use the default calculation for job estimates.
Any jobs created after you select this check box, however, will use the alternate calculation.
You review the analysis generated by the Split Cost Elements calculation within the Job Tracker.
The separate cost results are displayed on the Job Details> Assemblies > Costs sheet.

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You are the man, gpayne! You hit that nail right on the head. I’ll be sure to share the cookie I’ll get as a “thanks” from my boss :grin::rofl:

@jhecker EpicCare is great for these kinds of things. I remember this one because our owner hated the subs flowed as material process and was happy that Epicor had an alternate process.

I just don’t understand how EpiCare tells me to go talk to a 3rd party consultant. I copy/pasted the same exact text in the email to them as I did here and they seemed clueless. Which I will admit is not the normal experience I have with them.

I am glad you came out of the woodwork though, heh.

@jhecker The EpicCare KB search. If you search on cost elements you will find a lot of information.

That’s where I fall short. I am the IT guy…I make it run, and know the basics of how to use it and customize it… I never would have thought to look for “cost elements” in a KB search. And my accounting department didn’t mention that phrase to me either. Gotta love flying blind. (I like a challenge)

@jhecker That is why is is great to have groups like ours that have a lot of varied backgrounds.

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We upgraded from version 10.0.700.4 to 10.2.600.7 and would like to know if anything has changed regarding enabling this check box?

We keep the box unchecked except during a short window during physical inventory in which we check the box to enable mfg cost elements and use the Costing Workbench roll costs for final assemblies and subassemblies that need costs split. after rolling those part’s costs we Uncheck the box.

We are wondering if we now can keep the box checked and Epicor know how to handle the cost of the issued materials for subassemby parts and phantom subassembly parts?