Wright Williams & Kelly

Factory Explorer® v2.3
Technical Alert #16

Bias in Product Cost on
Process Step Detail Worksheet

Summary: When run-time option -WriteDetail is enabled, Factory Explorer® writes a step-by-step breakdown of product cost to the Process Step Detail Worksheet. In models with per-unit process times downstream from unit-based scrap, these product cost numbers can be biased on the high side, and the cumulative product cost listed on the last step for the process flow may not match the product cost reported on the Factory Summary and Product Cost Worksheets (the product cost numbers on these two worksheets are correct). There is no simple workaround for this problem. This error is fixed in Factory Explorer® v2.4 beta 4.

Details: To compute the step-by-step breakdown of product cost found on the Process Step Detail Worksheet, Factory Explorer® must allocate many cost elements to the products that use the individual steps. It performs this allocation on the basis of process time. E.g. if two products use a particular step, and due to variations in volume, product A accumulates 10 hours of production time per week on the step, while product B accumulates 40 hours of production time weekly, product A will be allocated 20% (10 hours divided by 50 hours) of the step cost, while product B will be allocated 80% of the step cost. The problem occurs when a model specifies unit-based scrap, which means that in general there will be partial lots downstream from the scrap point, and also specifies per-unit processing times downstream from the scrap point. In this case, the total production time for the step was being correctly calculated, taking into account the partial lots, but the portion of the production time generated by each product was being calculated on a full-lot basis. This could lead to a step's cost being over-allocated to each product, and the resulting cumulative product cost being higher than the actual value.

Workaround: There is no simple workaround for this problem. To see whether it is present in your model, check the cumulative product cost reported on the Process Step Detail Worksheet against the product cost reported on the Factory Summary or Product Cost Worksheets. If the numbers differ, the problem exists.

Techalert tafx16-9805


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