FAQ: Production Costing
Quick answers to common questions about how production costs work.
FAQ: Production Costing
Q: What if component prices change after I create a BOM? Does the cost update automatically?
A: No, the BOM cost does not update automatically. Usystems uses standard costing, which means each product has a fixed cost based on the BOM as it was when you created it. If you buy components at a different price later, you can:
- Update the component's unit cost in the product master, then manually recalculate the BOM cost.
- Create a new BOM with the updated component prices if you want to track cost changes over time.
This approach keeps your accounting stable (you always know what you paid for each item produced), but you should review BOMs regularly (monthly or quarterly) to catch price changes.
Q: Can I use a sold product's selling price as its cost?
A: No. Cost and price are separate. The cost is what it took to make the product (sum of component costs). The price is what you charge customers. The difference between them is your profit margin.
If you create a BOM and the total cost is 160 AFN, but you want to sell it for 500 AFN, that is correct—the cost is 160 and the price is 500. When you sell it, COGS will show 160 and your gross profit will be 340 AFN.
Q: If I produce 100 units but only sell 50, what happens to the other 50 units?
A: The other 50 remain in your Finished Goods Inventory at their production cost. They appear on your balance sheet as an asset (inventory). When you eventually sell them, COGS will be calculated at that time. This is normal—inventory you have not yet sold is an asset on your books until the sale happens.
Q: Does Usystems include labor and overhead in production cost?
A: Only if you explicitly add them to the BOM. The BOM is a list of materials and components. If you want to include labor or manufacturing overhead in the cost:
- Add them as separate line items in the BOM with a quantity of 1 and a unit cost equal to the labor or overhead amount per unit.
- For example, "Assembly labor: 1 × 50 AFN" would add 50 AFN to every unit produced.
This is optional—many small manufacturers only track material costs in the BOM and handle labor differently.
Q: I sold a product and it shows negative inventory. How is that possible?
A: This happens if you sold a product without having enough stock. Usystems may allow this in some configurations (backorder mode). The negative inventory means you owe that quantity—it will become positive again when you produce more.
To prevent this, check stock levels before creating invoices, or set up inventory alerts.
Q: How is COGS calculated for a product with multiple BOMs?
A: Each BOM is independent. A product can have one or more BOMs (for example, if you have different manufacturing processes or quality grades). When you produce using a specific BOM, the cost is based on that BOM. When you sell the product, Usystems uses the most recently produced batch's cost (FIFO by production date), or you can specify which batch to use if your system supports lot tracking.
Q: Where can I see the total COGS for a period?
A: You can see COGS in:
- The Profit & Loss (Income Statement) report – shows total COGS for a date range and compares it to revenue. Open in Usystems
- The General Ledger (Journal) – drill into the COGS account to see individual entries. Open in Usystems
- Sales reports – may show COGS per product or per invoice, depending on report type.
Q: Can I change a product's cost without creating a new BOM?
A: Not directly. The cost is always derived from the BOM. If you want to change the cost, you must update the BOM. You can:
- Edit the component quantities or unit costs in the existing BOM and save.
- Create a new BOM with a different cost structure.
Once you change the BOM, future productions will use the new cost. Past productions retain their historical cost.
Q: What is the difference between production cost and selling cost?
A:
- Production cost is the direct cost to make the item (materials + labor + overhead if included in BOM).
- Selling cost (not a standard accounting term, but sometimes used) might refer to additional expenses like shipping, packaging, or sales commissions. These are not part of the BOM cost and are tracked separately in your accounting ledger.
When you sell an item, COGS includes only the production cost. Other selling expenses reduce profit but are recorded separately.
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