2.3 BOM Calculations, Cost Group Types, Flushing Principles, and Scrap Handling

2.3 BOM Calculations, Cost Group Types, Flushing Principles, and Scrap Handling

A complete Bill of Materials specifies product structure while simultaneously driving product costing, general ledger postings, and shop-floor inventory consumption.

In Dynamics 365 Supply Chain Management (D365 SCM), functional consultants must understand how calculation groups determine cost rollups, how cost groups segment expenses on the costing sheet, how flushing principles automate material picking, and how scrap impacts master planning.

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1. BOM Calculation Groups and Cost Price Models

BOM calculations (cost rollups) calculate the cost price and recommended sales price of manufactured goods based on component prices, routing labor, machine runtimes, and overhead surcharges.

• Navigation: Cost management > Inventory accounting policies setup > Calculation groups
• Calculation groups are assigned to released products on the Manage costs FastTab in the BOM calculation group field.

Cost Price Models in Calculation Groups

Calculation Parameters and Stop Explosion

• Stop Explosion: Halts multi-level explosion at this subassembly. The engine treats the subassembly as a purchased/stocked part, utilizing its active cost rather than recalculating its underlying lines.
• Warning Conditions: Configurable validation rules that flag missing prices, zero-cost components, missing active routes, or expired costs during rollups.

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2. Cost Groups and the Costing Sheet Structure

Cost groups provide the classification framework for cost breakdown, inventory valuation, and production variance analysis.

• Navigation: Cost management > Inventory accounting policies setup > Cost groups
• Every released product and routing cost category links to a specific cost group.

The Four Core Cost Group Types

1. Direct Materials: Raw materials, subcomponents, and packaging issued from inventory to production orders.
2. Direct Manufacturing: Machine run time, setup labor, and operator hours linked to routing operations.
3. Indirect: Overhead surcharges (e.g., 10% on direct materials) or unit rates (e.g., $15.00 per machine hour for electricity and maintenance) calculated via the Costing sheet (Cost management > Costing sheets setup > Costing sheet).
4. Outsource: External subcontractor services and outside processing executed via purchase orders.
5. Undefined: Generic classification used when cost segmentation is not required.

Variance Analysis in Cost Accounting

During production order end-closing, D365 SCM compares actual costs against standard costs, categorizing variances by cost group into material price variance, quantity/scrap variance, labor rate variance, and efficiency variance.

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3. Flushing Principles (Material Consumption Timing)

The Flushing principle defines when and how raw materials are deducted from warehouse inventory and consumed against a production order via picking list journals.

Principle Mechanics

• Start: Automatically generates and posts picking lists upon order start. Common for continuous assembly lines.
• Finish: Defers consumption until final finished good reporting. Eliminates tracking WIP material for short runs.
• Manual: Mandatory for serial-controlled, batch-controlled, or catch-weight components where operators must scan specific identifiers.
• Available at Location (WMS): Bridges production with advanced warehouse management. When an order starts, D365 SCM checks if inventory has arrived at the resource Production input location. If warehouse work is completed, material flushes immediately; if inventory remains in bulk storage, flushing is bypassed to prevent negative inventory.

Resolution Hierarchy

1. BOM Line: Highest priority setting.
2. Released Product: Used if set to default on BOM line (configured on Engineer FastTab).
3. Start / RAF Dialog: Users can override defaults during transaction posting (e.g., selecting "Always" or "Never").

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4. Scrap Handling: Formulas and Master Planning Integration

Scrap accounts for unavoidable manufacturing waste across costing and supply planning:

Net vs. Gross Requirement Formulas

$\text{Net Component Requirement} = \text{Consumption Quantity} \times \left( \frac{\text{Production Order Quantity}}{\text{Per (Series)}} \right)$ $\text{Gross Requirement} = \left( \text{Net Requirement} + \text{Constant Scrap} \right) \times \left( 1 + \frac{\text{Variable Scrap}}{100} \right)$

Cumulative Route Scrap Compounding

When routing operations include Operation scrap percentage, D365 SCM compounds scrap backwards: preceding operations and raw materials scale up to ensure net output survives downstream scrap.

Supply Planning and Costing Impact

• Master Planning (Planning Optimization): Calculates gross demand including scrap. Planned purchase and production orders are sized to prevent component shortages.
• Standard Costing: Expected scrap is factored into unit standard costs. Actual scrap exceeding standard amounts posts to Production scrap variance accounts in the general ledger at production end-closing.

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Exam Tips and Common Traps

• Available at Location Prerequisite: If materials fail to flush automatically under Available at location, verify that WMS warehouse work has deposited stock at the resource Production input location.
• Stop Explosion Parameter: Remember that Stop Explosion on a calculation group stops cost rollups at that subassembly, pulling its active cost instead of recalculating child lines.
• Cost Group Classifications: Machine runtime is Direct manufacturing; vendor PO services are Outsource; facility surcharges are Indirect.