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Material Cost Type and Material Cost Type/Location accounts

Adapted from the Leahy Consulting white paper "How do I set up the Material Cost Type & Material Cost Type/Location Account codes when using the Macola® Production Order Processing (POP) software?", updated March 2021. The Macola® source material was edited for readability.

This guide is for Macola® customers running Production Order Processing. If you run Shop Floor Control instead, the account list is longer and the Work Center Account Group screen comes into it — see The set-up screens that hold G/L accounts.

Both screens live under Inventory Management → Maintain.

Material Cost Types

Material cost types sort inventory items into classifications — raw goods, work-in-process, finished goods. Each one gets a three-digit code, and every inventory item must carry one.

Keep the list short enough to analyze

Material cost types and product categories are the two dimensions you will slice inventory and margin by for years. A list of fewer than ten of each stays analyzable; a list of sixty does not.

Material Cost Type/Location Account Maintenance

This screen tracks inventory costs by material cost type within each location. Distributions to the general ledger are based on the cross-reference of the transaction's location and the item's material cost type. Where a record exists for that combination, the distributions go to those accounts. Where one does not, Macola® uses the default accounts in I/M Setup.

The accounts

Inventory Asset

The value of the inventory for each material cost type and location. Debited as inventory increases, credited as it is depleted.

Type of transaction Normal distribution Offset distribution account
IM Trx R=Receipt Debit Inventory Receipt
IM Trx I=Issue Credit Inventory Issue
IM Trx T=Transfer Credit From Location, Debit To Location Asset, Transfer Cost
IM Trx C=Cost Adj Credit cost decrease, Debit cost increase Cost Adjustment
IM Trx Q=Qty Adj Credit negative adj, Debit positive adj Quantity Adjustment
IM Phys/Cycle Count Credit negative adj, Debit positive adj Quantity Adjustment
OE Posting Invoices Credit (non Confirm Pick/Ship setting) Cost of Goods Sold
OE Credit Memos Debit at credit-memo entry (not from RMA) Cost of Goods Sold
OE Confirm Pick Credit Pick Offset
OE Confirm Ship Credit Ship Offset
OE RMA Receipt Debit Inventory Receipt
PO Receipt Debit Receiving Accrual
PO Receipt (Inspection) Debit R/I Asset R/I Receiving Accrual
PO R/I Disposition Credit R/I Asset, Debit stock or MRB asset See the disposition note
PO MRB Disposition Credit MRB Asset, Debit Asset See the disposition note
BOM Print Costed Bill Credit cost decrease, Debit cost increase Cost Adjustment
POP Release Orders ¹ Credit Asset of components Debit WIP of parent
POP Unrelease Orders ¹ Debit Asset of components Credit WIP of parent
POP Report Production Debit Asset of parent ² Credit WIP or component Asset ¹
POP Disassembly Credit Asset of parent ² Debit Asset of component ²
POP Adjust Material Issue Debit/Credit component based on change WIP Variance of parent

¹ Depends on the Create WIP setting when the POP order is released. With Create WIP = N, nothing is distributed at release and the component asset account is credited at reporting production instead. With W or Y, the distributions are made as listed.

² Any difference between the component cost — including value-added costs — and the parent cost goes to the WIP Variance of the parent item.

R/I and MRB dispositions post to several accounts

The receipt at P/O receiving distributes to R/I Asset (debit) and R/I Accrual (credit). Accepting quantities during the R/I disposition washes both into the Asset and Accrual accounts of the stocking location. Moving quantities to MRB washes them again — R/I Asset (credit) and R/I Accrual (debit) against MRB Asset (debit) and MRB Accrual (credit). Quantities accepted through MRB wash MRB Asset (credit) and MRB Accrual (debit) into the stocking location's Asset and Accrual. Scrap, Destroy and Return To Vendor post to the accounts on page two of Inventory Location Maintenance.

Receiving Accrual

Credited when items are received on purchase orders, and held until the vendor's voucher is keyed. It offsets the Inventory Asset distribution at P/O receiving; Accounts Payable washes it when the voucher is processed.

Type of transaction Normal distribution Offset distribution account
PO Receiving Credit Inventory Asset, PPV Suspense
AP Vouchering Debit A/P, PPV Qty and Cost

The distribution varies with the inventory cost method in I/M Setup. PPV Suspense — from P/O Setup — is used only under standard cost, and takes the difference between the receipt cost and the cost on file in the item location.

Changing this account does not update existing purchase orders

The same applies to PPV Cost and PPV Quantity: all three are captured onto the purchase order line from this screen when the order is created.

Inventory Issue

Debited when a miscellaneous issue is generated through Enter Inventory Transactions in I/M. Inventory Asset takes the credit.

Type of transaction Normal distribution Offset distribution account
IM Trx I=Issue Debit Inventory Asset

Inventory Receipt

Credited when a miscellaneous receipt is generated through Enter Inventory Transactions in I/M, or through RMA receiving in O/E. Inventory Asset takes the debit.

Type of transaction Normal distribution Offset distribution account
IM Trx R=Receipt Credit Inventory Asset
OE RMA Receipt Credit Inventory Asset

Quantity Adjustment

Debited or credited when quantities change through physical counts or I/M adjustments, for the cost of the parts times the number adjusted.

Type of transaction Normal distribution Offset distribution account
IM Trx Q=Quantity Adj Debit negative adj, Credit positive adj Inventory Asset
IM Physical/Cycle Count Debit negative adj, Credit positive adj Inventory Asset

Cost Adjustment

Debited or credited when the cost of an inventory item changes.

Type of transaction Normal distribution Offset distribution account
IM Trx C=Cost Adj Debit reduced cost, Credit increased cost Inventory Asset
BOM Print Costed Bill Debit reduced cost, Credit increased cost Inventory Asset

Work In Process

Holds the value of material, labor and absorbed costs issued to the manufacturing order.

Type of transaction Normal distribution Offset distribution account
POP Release Orders ¹ Debit WIP of parent Credit Asset of components
POP Unrelease Orders ¹ Credit WIP of parent Debit Asset of components
POP Report Production Credit WIP ¹ ² Debit Asset of parent ²

Work In Process Variance

Takes the postings when manufacturing costs differ from the cost of the parent.

Type of transaction Normal distribution Offset distribution account
POP Complete Production Debit/Credit WIP Variance ¹ Debit parent asset, Credit WIP ¹
POP Disassembly Debit/Credit WIP Variance ² Credit parent, Debit component ²

PPV Cost

Under standard cost, A/P uses this account for the difference between the dollars invoiced and the item's standard cost. Under Average, Last, LIFO or FIFO, it is the difference between the dollars invoiced and the receipt cost. Either way it is the dollar difference between the Receiving Accrual account and the Accounts Payable account at vouchering.

Type of transaction Normal distribution Offset distribution account
AP Vouchering Debit/Credit PPV Cost Account Accounts Payable Account

Receiving accrual is always debited for the entire amount against the P/O line, and Accounts Payable credited for the entire amount vouchered. PPV Cost is debited when the amount vouchered is greater than the amount in receiving accrual, credited when it is less.

PPV Quantity

A/P uses this account for the difference between the quantity received and the quantity invoiced. It is used when the voucher quantity on page two of A/P → Enter Voucher Transactions is greater than the P/O receipt quantity and the line is invoiced in full.

Receive a line for 10 at $8 — the same as the item location cost — then voucher it for 12 at $8. A/P is credited $96, Receiving Accrual debited $80, and PPV Quantity takes the $16 difference.

Nothing posts here when the voucher quantity is less than the receipt quantity; that difference stays as received but not invoiced.

Type of transaction Normal distribution Offset distribution account
AP Vouchering Debit Credit A/P, Debit Accrual

Transfer Cost

Debited or credited for the difference in standard costs between locations, against the FROM location.

An item costs $3.00 at location AA and $3.50 at location BB. Transfer 100 units from AA to BB:

  • Inventory Asset for AA is credited $300.00
  • Inventory Asset for BB is debited $300.00
  • Inventory Asset for BB is debited a further $50.00
  • Transfer Cost for AA is credited $50.00
Type of transaction Normal distribution Offset distribution account
IM Trx T=Transfer Debit or Credit FROM location Credit FROM asset, Debit TO asset

Material Cost and Material Quantity

Neither is used by the Macola® POP software. Populate both with the 999 account that should never carry an entry — anything that lands there is worth investigating.

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