2011-11 Plant Accounting SubFunction-Screen02
Transcript of 2011-11 Plant Accounting SubFunction-Screen02
Plant Accounting - Roles and Responsibilities- from a Financial Statements-lines perspective -
Eduardo Hernandez
Dow Corning Corp.
2012/11/15
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Contents
1 Introduction
2 Line 147 Property, Plant and Equipment (PP&E)
3 Line 125 Inventory
4 Line 306 Cost of Sales (COS)
5 Line 313 Non Standard
6 Line316 Manufacturing Expenses - Support
7 Line 312 Manufacturing Expenses
8 Misc
9 Other Activities 2 / 52
Contents
1 IntroductionIntroductionPlant Accounting relationships
2 Line 147 Property, Plant and Equipment (PP&E)
3 Line 125 Inventory
4 Line 306 Cost of Sales (COS)
5 Line 313 Non Standard
6 Line316 Manufacturing Expenses - Support
7 Line 312 Manufacturing Expenses
8 Misc
9 Other Activities
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Introduction
The purpose of this talk is to convey to new Finance employees in Chinaan overview of the Plant Accounting (PA) or Manufacturing Accountingsubfunction in Dow Corning (DC).
We will cover here PA’s main Roles and Responsibilities, activities andrelationships with other parts of the organization, approaching this fromthe ’Lines’ in the Financial Statements to which PA is strongly related.
The purpose of this talk is not to provide very specific information in anyparticular topic, instead, the material is geared mainly to the show thewhat (activities) and sometimes its why (purpose). We will cover thehow (specif procedures) only to the extent that is pertinent.
Plant Accounting relationships
Plant Accounting interactsprimarily with the followinggroups:
Finance Function
LE controllers, CorporateAcctg (GAAP, LE Planning)
Local and Corporate Tax
Mfg Controller (Functionalexcellence: Cost Acctgmethodology, initiatives,guidance )
Internal Control, Auditors
Treasury, Insurance
Plant Accounting relationships...
Business
Business Controllers(FAs, EEs):Planning, MfgVariances, ProductCost
Business/ProductLine (PL) Mgrs
Plant Accounting relationships...
Mfg Eng Global Op (MEGO)
Plant Mgr and staff (Expmonitoring, planning, plantperformance)
Procurement, Logistics, A/P
Global Capital and Eng/Global MfgAutomation (GCE/GMA)
Plant Accounting relationships...
Others
HR
BP, IT (GBS)
Contents
1 Introduction
2 Line 147 Property, Plant and Equipment (PP&E)Capital Spending ProcessFixed Assets AccountingInternal Control
3 Line 125 Inventory
4 Line 306 Cost of Sales (COS)
5 Line 313 Non Standard
6 Line316 Manufacturing Expenses - Support
7 Line 312 Manufacturing Expenses
8 Misc
9 Other Activities
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Capital Spending Process
Idea / Need
Capital Allocation Process
Portfolio of potential projects
CAR, EE, etc
Approval ? Assets Asset Class CIO Usable Life
Salvage Value CIO + XIO Settlement Rules
Expenses (L316) CC Work Orders XIO
PO_s (Matls, Serv) ERSA GI_s
PM_LABOR charges
Capital Planning
Captial Authorization
Asset Acquisition / Construction
Fixed Assets
Accounting
Fixed Assets Accounting
The values assigned to assets upon acquisition or construction are thosecollected under the respective CIO.
Fixed Assets values will always be denominated in the local currency of theentity under which they are being created with an equivalent value in the‘functional’ (or ‘group’) currency of such entity using the exchange rate‘M’ current at the time the transaction takes place.
VAT: Part of cost of acquistion?
Each asset will have attached various items of information like acquisitionor capitalization date, asset class, physical location, cost center, plant,starting depreciation date, method of depreciation (‘depreciation key’),useful life, salvage value, etc.
Fixed Assets Accounting: Depreciation Areas
SAP creates and maintains several’books’ for fixed assets, called‘depreciation areas’:
01 Book Depreciation US GAAPBasis (Loc. Cy.)02 Local Legal Depreciation (Loc.Cy.)10 Tax Depreciation...20 Insurance Replacement Value32 Book depreciation in (Group Cy.)33 Book depreciation in (Index Cy.)
01 = Management GL Acctbalances;02 = Legal;10 = Offline
Misc: Capitalization criteria (USGAAP, Local GAAP, Tax)
I/C transfers of Assets
Fixed Assets Accounting: Misc
Misc
Buy vs Lease
Capital vs Expense
Fixed Assets Accounting: Misc
Strategic or Critical Spares
“... are pieces of equipment, or major partsfor a piece of equipment, not readilyavailable on short notice.
Though many strategic spares may neverbe utilized, having them on hand isconsidered essential to avoid serious delay inrestoring vital equipment in the event offailure.”
They are always Capitalized, but written upas ERSA for tracking purposes (due tomobility); lately, new Matl Type available(IBAU)
Fixed Assets Accountingexamples of thorny questions
Capital or Expense?
A plant uses certain gas as aprocess-aid. In order to have asecure supply, the plant purchases asignificant amount of this gas at arelatively low price and store it in acontainer. This gas will not have animmediate use; it is kept there forstrategic reasons. The gas wouldeventually dissipate over a longperiod if not used.
Should this be reported as capital orexpense?
Fixed Assets Accountingexamples of thorny questions
A big, expensive piece of an equipment orprocess was recently installed andexperienced a catastrophic failure renderinguseless. A new piece is brought in and thedamaged piece removed. There is thepossibility the damaged piece could berefurbished and kept as a strategic spare.
How should this be reported?
As a replacement of a damaged piece, restoring anequipment to its original capacity, therefore as anexpense (replacement like for like)? or Capitalizethe cost as an strategic spare?
Report the net book value of the original piece asscrapped and then capitalize only the refurbishmetcost? or Keep in the books the original asset recordand increase its value with the refurbishementcosts?
Fixed Assets Accountingexamples of thorny questions
A big, expensive piece of an equipment orprocess was recently installed andexperienced a catastrophic failure renderinguseless. A new piece is brought in and thedamaged piece removed. There is thepossibility the damaged piece could berefurbished and kept as a strategic spare.
How should this be reported?
As a replacement of a damaged piece, restoring anequipment to its original capacity, therefore as anexpense (replacement like for like)? or Capitalizethe cost as an strategic spare?
Report the net book value of the original piece asscrapped and then capitalize only the refurbishmetcost? or Keep in the books the original asset recordand increase its value with the refurbishementcosts?
Fixed Assets: Internal Control
CAR : approved CAR; no expenditure w/o CAR;timely/correct recording of expenditures
Asset Record : correct creation/change asset records (depn key,asset class, etc)
Physical verification : also, identification of idle assets
Disposal : sale, removal, demolition, I/C sale
Contents
1 Introduction
2 Line 147 Property, Plant and Equipment (PP&E)
3 Line 125 InventoryBasic ConceptsInternal Control
4 Line 306 Cost of Sales (COS)
5 Line 313 Non Standard
6 Line316 Manufacturing Expenses - Support
7 Line 312 Manufacturing Expenses
8 Misc
9 Other Activities
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Line 125 - InventoryMaterial Types
Line 116 - Produced Goods InventoryHALB - ‘DC Produced’ (Finished and Intermediate)
Line 117 - Purchased Materials InventoryROH - Raw Materials (from third party vendors)
examples: Methanol (MeOH), Methyl Chloride(MeCl), Platinum, Fumed Silica, misc chemicals,packaging components (drums, IBCs, pails, boxes,etc)
Special casesSilicon Metal: purchased from third-parties (ROH)and from and produced by DC (HALB: CBCC, etc)
STC-TCS, other Silicone intermediates: producedby DC (HALB); sometimes, purchased fromthird-parties
Line 125 - InventoryMaterial Types
Line 118 - Maintenance and SuppliesInventoryERSA - Spare parts, supplies, process-aids
Line 119 - Inventory ReserveValuation allowances
Notes- All these materials at any moment could be in posessionof DC, vendors, customers, contract manufacturer,in-transit, DC managed warehouses, third-party managedfacilities. Also, it could be on status unrestricted (ok),blocked (obsolete/expired/damaged/etc), slow-moving,etc.- GL balances reconcile to PPC1 + legal uplift,capitalization/amortization of variances, etc
SAP - Other material types
IBAU : Strategic Capital Spares
LEIH : Returnable packaging
ZMAT : family of products
ZWER : DCC SEU Services
ZWST : Waste
These material types are used mainly to track physical quantities withlittle or non financial impact. We will not cover them in any detail in thispresentation.
Valuationmain cost estimates
PPC1: Management CostFundamental cost estimate by productused as ‘basis’ for other cost-estimates.
Main purpose is internal valuation ofInventory and Cost of Sales (COS) andBusiness Reporting.
ZPC1: Legal or Local CostBased on PPC1, except that some PPC1components are ignored here (certainAdditive Elements, Pooling, etc).
For materials purchased from other DCsubsidiaries, Transfer Price (TP) isconsidered rather than the underlyingMgmt cost.
Main use is to serve as basis forvaluation of Inventory and COS for localGAAP and tax purposes.
Valuationother cost estimates
TPC1: Internal Transfer Price(ITP)
Not longer maintained. Used forBusiness Reporting.
This has nothing to do with LegalTransfer Price used to value I/C sales.
Unit Cost And Capital (UCAC)
Used for Economic Evaluation (EE)purposes.
Not maintained in SAP.
These two are/were used for special purposes.
We will not cover them in any detail in this
presentation.
Valuation: PPC1 cost estimatecomputation methods (by matl type)
ROHs, ERSAsUnit Cost :
If no forecast MAP (PP2), then, these are valued at current MovingAverage Price (MAP)Duty and Freight not included (unless embedded in purchase priceunder appropriate delivery terms –ie, DDP, etc)
Process Cost : None
Facility OH Cost : None
HALBsUnit Cost : Bill of Material (BOM) ingredients (at PPC1, by cost components )
Process Cost : via Activity qty per Master Recipe by Resource at Std Activity Rate fromCost Center Plan (ie, forecast of Mfg Process Mfg LDO) + Process Cost ofBOM HALB ingredients
Facility OH Cost : Process cost multiplyed by Plant’s Facility OH factor + Facility OH Cost ofBOM HALB ingredients
Valuation, main cost estimatescost components
- PPC1 ZPC1Unit Cost Mgmt Cost for materials
+ local additive components(ie, D&F + Contr Mfg Fees+ Other)
ZPC1 cost for materials (ROHs = MAP,HALB = total cost; for materials from otherLEs, Transfer Price) + local additive com-ponents
Process Cost Forecast LDO Mfg expensesfor activities directly relatedto production + local addi-tive components
Forecast LDO Mfg expenses for activities di-rectly related to production + local additivecomponents (except Non Pilot OH, Pooling)
Facility OHCost
Forecast LDO Mfg expensesfor activities not directly re-lated to production + localadditive components
Forecast LDO Mfg expenses for activitiesnot directly related to production + localadditive components (except Non Pilot OH,Pooling)
Legal Costing: PPC1/ZPC1 differences...
- PPC1 ZPC1ROHs Forecasted MAP -PP2- (if null
value then MAP)Forecasted MAP -PP1- (if nullvalue then MAP)
HALBs from plantswithin same LE
PPC1 traced from sourcing site(broken by cost component)
PP3 = ZPC1 traced from sourc-ing site (not broken by costcomponent)
HALBs from plantsin different LEs
PPC1 traced from sourcing site(broken by cost component) +local Additive Cost Elements
Transfer Price (PP1) + localAdditive Cost Elements
Additive Cost Ele-ments
- All copied from PPC1 variant,except Non Pilot OH
‘Transfer Control’(TC)[1]
The system applies TC PC02,which specifies when pre-existing cost estimates may beused in the cost build up.
The system applies no TC; al-ways ‘explodes’ back.
[1] For ZPC1 cost estimates “... my understanding is that the system cannot take costs from upstream LEs, because there are
no transfer control. So, we have to put PP1 values for inter-company transferred materials.” (Kimura-san)
Inventory: Internal ControlSOx subprocesses: control activities
Receiving and Shipping : in and outs; adequate procedures, properrecording of transactions
Physical inventory (verification) : cycle count
Planning and Scheduling : proper classification of inventory, disposition ofbad material
Master Data : (1) accurate BOMs, Master-Recipes
Inventory Management : correct/timely recording of trans, monitor InvAdj, procedures for Vendor, Customer consigment, ContrMfg, Restricted access, physical security
Valuation : consistent methods, Std Cst Chg Analysis, Mfg VarAnalysis
(1) Also referred to as ‘Production Rrecording’
Contents
1 Introduction
2 Line 147 Property, Plant and Equipment (PP&E)
3 Line 125 Inventory
4 Line 306 Cost of Sales (COS)
5 Line 313 Non Standard
6 Line316 Manufacturing Expenses - Support
7 Line 312 Manufacturing Expenses
8 Misc
9 Other Activities 29 / 52
Line 306: Cost of Sales (COS)
Management
PPC1 by Product –>ZMAT –>BPU –>PL –>BusGL Acct balances match PPC1
Legal
GL Acct balances does not match ZPC1instead PPC1 plus legal uplift, Inv Reserves,Capitalization/Amortization of Mfg Variances, etcIncludes Mgmt Lines 307, 312, 313, and 353
Contents
1 Introduction
2 Line 147 Property, Plant and Equipment (PP&E)
3 Line 125 Inventory
4 Line 306 Cost of Sales (COS)
5 Line 313 Non StandardNon Standard categoriesAccounting and Evaluation
6 Line316 Manufacturing Expenses - Support
7 Line 312 Manufacturing Expenses
8 Misc
9 Other Activities
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Line 313 - Non Standard: main categories
Production Variance:
Usage - (Supply Chain) - BOM correctionPrice - (Procurement) - better fcst Std MAP
Inventory Adjustments:
Mov Type 7xx (Supply Chain); root cause inv (RCI), ie,missing GI, Inv Accuracy, tax deductibilityMov Type 55x (SC); scrap, RCIMov Type 309 (SC); TPV (diff Std Cst), Mat Conv PL(MCPL)Inventory Revaluation (Std Cst Chg Analysis)
Duty and Freight: Actual vs Capitalized (Logistics)
Contr Mfg: Similar to Production Variance
Others: Export VAT, etc
Line 313 - Non Standard: Accounting and Evaluation
Assignment
Cost Center type ‘X’; GL accounts 4xxx-xxx (see Rpt ZFI00124)
Automatic assignment based on Mov Type; Plant; Matl BPU
Plant Accountants (PA) assist in the case of manual transactions
Evaluation
Ideally, balance should be zero
For Mgmt purposes, this is reported and tracked (by plant, BPU,Business, Exp Category)
For GAAP and Tax purposes, this is capitalized to inventory andamortized according to inventory turnover(except Inv Adj –not Reval–, Export VAT, etc; GBPD FM.STD.00066- CAPITALIZATION OF VARIANCES –gone?–)
Line 313 - Non StandardAccounting and Evaluation
Actual Standard
‐ Actual Duty & Freight ‐ Estimate D&F capitalized to Inventory
‐ Cost of Inventory Writte Offs
‐ Cost of Inventory Scrap
‐ Actual Contr Mfg costs: ‐ Materials ‐ Contr Mfg Fees ‐ Freight Costs
‐ Actual Internal Production costs: ‐ Materials ‐ Process Costs (Act Rates) ‐ Facility Costs
Line 313 ‐ Non Standard
‐ Std Cost of Contr Mfg Production
‐ Std Cost of Production
Contents
1 Introduction
2 Line 147 Property, Plant and Equipment (PP&E)
3 Line 125 Inventory
4 Line 306 Cost of Sales (COS)
5 Line 313 Non Standard
6 Line316 Manufacturing Expenses - SupportAccounting and Evaluation
7 Line 312 Manufacturing Expenses
8 Misc
9 Other Activities35 / 52
Line 316 Non Abs or Support Mfg Expenses
Assignment
Cost Center type ‘N’; GL accounts 5xxx-xxx (LDO: Labor,Depreciation and Other)
Not allocated to products (ie, not capitalized to inventory)
Manual assignments to Cost Center (CC) and Cost Element (CE),most of the time, are made by end-users, with assistance, guidancefrom PA
Criteria for inclusion
Examples: engineering department when strongly aligned with GMA/GCE,Idle Assets, A/P, Procurement, XIO costs, removal/demolition, etc
Line 316 Non Abs or Support Mfg Expenses
Hours worked on Capital projects (CIOs/XIOs), or regular work orders(PM, reliability activites, etc) are credited via Cost Elements 99xxxxx thruStd Activity Rate for PM Labor (only visible in Mgmt books)In a way, these are handled as internal consultants who charge expenses toother CCs in the plant, or to any other ‘cost collector’ for that matter.
Evaluation
Business (Financial Analyst -FAs-) monitors vs Budget
Plant Mgmt monitors vs Budget and/or vs historical trends (SPC -Statistical Process Control)
Line 316 - Mfg Expenses (Support)Accounting and Evaluation
Actual Standard
‐ Actual Expenditures (GCE/GMA): ‐ Labor ‐ Depreciation ‐ Others
‐ Actual Expenditures: ‐ Depreciation IDLE assets ‐ Demolition, removal ‐ Procurement, A/P, etc
Line 316 ‐ Mfg Expenses ‐ Support
‐ Std Activity Rate x Hours charged out
Contents
1 Introduction
2 Line 147 Property, Plant and Equipment (PP&E)
3 Line 125 Inventory
4 Line 306 Cost of Sales (COS)
5 Line 313 Non Standard
6 Line316 Manufacturing Expenses - Support
7 Line 312 Manufacturing ExpensesDefinition and AccountingOver/Under AbsorptionP+L Items: Evaluation and Control
8 Misc
9 Other Activities
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Line 312 Mfg Expenses (Over/Under Abs)
Assignment
Cost Center type ‘M’; GL accounts 5xxx-xxx (LDO)
Allocated to products (ie, capitalized to inventory) via Std ActivityRates and Std Resource Quantities -from Mstr Recipe-
Manual assignments to Cost Center (CC) and Cost Element (CE),most of the time, are made by end-users, with assistance, guidancefrom PA
Criteria for inclusion
Regular Expenses directly related to mfg activities at a plant, includingsupport functions such as Utilities, Waste Disposal, QA, EHSS, PlantMgmt and leadership, Plant Accounting, etc
Line 312 Mfg Expenses (Over/Under Abs)
Usage of Resources are reported by Production Order based on StdQty per the Mstr Recipe (although some sites report Actual Usage,eg, Machine-Hours). The monetary equivalent of this usage (plusFacility OH) is credited to L312. The difference between these Stdvalues and Actual spending constitutes the Over/Under Abs for theperiod...
which can be analyzed in terms of efficiency, volume, etc. But,assuming the Amounts and Quantities in the CC plan were correct(realistic/attainable), by definition all the Over/Under Abs reportedis attributable to Efficiency or Volume; usually lower productionvolume delivered due to efficiency issues at the plant or due toconscious decision to respond to sudden changes in the businessenvironment.One last reason might be completely unexpected adverse events (eg,catastrophic failure of an equipment, force majeure, raw materialsupply disruptions, etc).
Line 312 Mfg Expenses (Over/Under Abs)
Usage of Resources are reported by Production Order based on StdQty per the Mstr Recipe (although some sites report Actual Usage,eg, Machine-Hours). The monetary equivalent of this usage (plusFacility OH) is credited to L312. The difference between these Stdvalues and Actual spending constitutes the Over/Under Abs for theperiod...
which can be analyzed in terms of efficiency, volume, etc. But,assuming the Amounts and Quantities in the CC plan were correct(realistic/attainable), by definition all the Over/Under Abs reportedis attributable to Efficiency or Volume; usually lower productionvolume delivered due to efficiency issues at the plant or due toconscious decision to respond to sudden changes in the businessenvironment.One last reason might be completely unexpected adverse events (eg,catastrophic failure of an equipment, force majeure, raw materialsupply disruptions, etc).
Line 312 Mfg Expenses (Over/Under Abs)
These amounts are credited to L312 via Cost Elements 99xxxxx (onlyvisible in Mgmt books)
Evaluation
For Mgmt purposes, this is reported and tracked.
Business (Financial Analyst -FAs-) monitors vs BudgetPlant Mgmt monitors vs Budget and/or vs historical trends (SPC)
For GAAP and Tax purposes, this is capitalized to inventory andamortized according to inventory turnover (except when attributableto unplanned events: ( PD.PRC.01625 - PRODUCT COSTING - SFAS 151
COMPLIANCE PROCEDURE )
Line 312 - Manufacturing ExpensesAccounting and Evaluation
Actual Standard
‐ Actual Expenditures (Process): ‐ Labor ‐ Depreciation ‐ Others
‐ Actual Expenditures (Facility): ‐ Labor ‐ Depreciation ‐ Others
Line 312 ‐ Manufacturing Expense (Over/Under Abs)
‐ (Std Activity Rate) x (Resource Qty charged to Prodn Orders)
‐ (Std Process cost charged to Prodn Orders) x (Std Facility OH factor)
P+L Items: Evaluation and Controlvs predetermined values: Budgets, etc
How realistic/attainable are the budgeted figures?How much ‘ownership’ those managing the expenses have with respect tothe budgeted amounts?
P+L Items: Evaluation and Control...vs ‘historical values’: SPC -Statistical Process Control-
Contents
1 Introduction
2 Line 147 Property, Plant and Equipment (PP&E)
3 Line 125 Inventory
4 Line 306 Cost of Sales (COS)
5 Line 313 Non Standard
6 Line316 Manufacturing Expenses - Support
7 Line 312 Manufacturing Expenses
8 Misc
9 Other Activities 47 / 52
Fixed Expenses Accountingexamples of thorny questions
An old equipment breaks down and we find difficulty in fixing it. Not eventhe manufacturer can provide guidance. We hire the services of an retiredemployee who is apparently the person that best know these equipments.We hired him for this project that last 3 weeks, we pay him a fee for hisservices (he is not a professional engineer) plus travel and lodging.
How should we report these expenditures?
As ’maintenance-services’ cost?As ’Outside services’?As Temporary Labor?
Plant Accounting - LE accounting issues?
PM Labor charges across LEs; recommended mechanic:
if ‘significant’, PA to charge post expenditures within sourcing LE, inCC aligned to receiving plant’s CC-Group;
if necessary, LMAC to charge out amount via P+L Line 345 forLegal/Tax purposes on quarterly basis, under TP agreements,documentation, etc.
Line 119 - Inventory Reserves: local PA should use LGL accounts;why?
Corp Acctg posts Global reserves using MGT accounts. If LM Accountsare used at the LE level, this causes duplication.
Contents
1 Introduction
2 Line 147 Property, Plant and Equipment (PP&E)
3 Line 125 Inventory
4 Line 306 Cost of Sales (COS)
5 Line 313 Non Standard
6 Line316 Manufacturing Expenses - Support
7 Line 312 Manufacturing Expenses
8 Misc
9 Other Activities 50 / 52
Plant Accounting Other Activities
Planning : 5Yr Plan, Budget, Forecast
Internal Control : coordinate SOx compliance efforts, coach Supply Chainpersonnel, consult with Int Ctrl/Audit, coordinate audits,follow up on audit findings
Ad Hoc : Plant performance tracking/evaluation (vs Bdgt, vsTrends); Productivity (L&O/Kg); 6Sigma Financial Impact,KPI/Scorecard, Cost of (poor) Quality, Headcount
Month End : accruals, reconciliation
External Reporting : Tax, Statistical, LMAC support, etc
Thank you!
Any question ?
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