Overview
Mothernode Job Costing separates budgeted costs from actual costs to help compare what a job was expected to cost against what was actually spent during production.
When reviewing the Purchase Order section of Job Costing, you may see a Purchase Order Budget of $0.00, even when the job contains items that will ultimately be purchased from an outside vendor.
This is typically determined by how the inventory item is classified.
For Mothernode to establish the appropriate Purchase Order budget, the inventory item must be properly designated as a Made Out or Buy Out item.
Why Does the Purchase Order Budget Show $0.00?
Mothernode uses the item’s configuration to determine how the expected cost should be categorized within Job Costing.
If an inventory item is expected to be purchased or outsourced but is not designated as Made Out or Buy Out, Mothernode does not have the appropriate purchasing classification needed to establish that cost within the Purchase Order budget.
As a result, the Purchase Order Budget may display:
$0.00
This is expected behavior based on the configuration of the inventory item.
Made Out and Buy Out Items
The Made Out and Buy Out designations identify items whose costs are expected to come from an outside vendor rather than being fulfilled entirely through internal production.
This distinction is important for Job Costing because Mothernode needs to understand where the expected cost of the item belongs.
When the applicable inventory item is properly designated as Made Out or Buy Out, Mothernode can recognize the expected outside purchasing cost and include it in the appropriate Purchase Order budget.
Example
Consider a job that includes a component expected to cost $1,000 from an outside vendor.
If the inventory item is properly configured as a Made Out or Buy Out item, Mothernode can use that expected cost when establishing the Purchase Order budget.
The Job Costing results may begin with:
PO Budget: $1,000
If the same item is not properly designated as Made Out or Buy Out, there is no applicable Purchase Order budget established for that item.
The Job Costing results may instead show:
PO Budget: $0.00
The difference is not whether a Purchase Order will eventually be created. The difference is how the item was classified when the job’s expected costs were established.
Budget vs. Actual Purchase Order Costs
It is important to distinguish between the Purchase Order Budget and the Purchase Order Actual.
Purchase Order Budget
The Purchase Order Budget represents the expected purchasing or outsourced cost established for the job.
This is part of the projected cost structure used to evaluate the job before all actual costs have occurred.
Purchase Order Actual
The Purchase Order Actual represents costs that have actually been recognized from purchasing activity.
Mothernode recognizes Purchase Order actual costs when the applicable Purchase Order items are received, rather than when the Purchase Order is initially created.
A Purchase Order represents an authorization or commitment to purchase. The actual quantity received, final cost, freight, and other factors may still change before the goods are received.
Recognizing the cost at receipt allows Job Costing to reflect what has actually been received for the job.
Example: Budget to Actual
A job may begin with an expected outsourced cost of:
PO Budget: $1,000
A Purchase Order is later issued to the vendor for:
PO Amount: $1,050
At this point, issuing the Purchase Order alone does not establish the PO Actual.
Once the applicable items are received, Mothernode can recognize the received cost within Job Costing:
PO Budget: $1,000
PO Actual: $1,050
Variance: $50
This allows the original expectation to remain available for comparison against what the job ultimately cost.
How This Fits Into Mothernode Job Costing
Mothernode uses a combination of budgeted and actual information to provide visibility into job performance.
During the Quote and Order stages, expected costs establish the projected cost structure of the job.
As the job progresses through purchasing and production, actual costs are generated from real activity.
For materials, Mothernode uses a Forecast-to-Actual methodology where estimated BOM material costs provide the initial cost baseline and evolve as actual material usage changes.
Other cost categories, including outsourced and Purchase Order costs, are based on actual activity as those costs occur.
This allows Job Costing to provide early cost visibility while still developing into a more accurate financial picture as the job progresses.
When Should Job Costing Be Reviewed?
Job Costing is a live and evolving cost model while a job is in progress.
During production:
- Materials may be added, removed, or substituted
- Material quantities may change
- Labor continues to be recorded
- Purchase Orders may be created
- Purchase Order items may be received in stages
- Outsourced costs may change from their original estimates
Because these values continue to develop, the best time to evaluate the final accuracy of Job Costing is after the job has been completed and the applicable production and purchasing activity has been recorded.
Key Takeaway
If the Purchase Order Budget shows $0.00, review how the applicable inventory item is configured.
For an expected purchasing or outsourced cost to populate the appropriate Purchase Order budget, the inventory item must be properly designated as Made Out or Buy Out, respectively.
The Purchase Order Budget represents the expected cost, while the Purchase Order Actual develops from purchasing activity and is recognized when the applicable Purchase Order items are received.
Properly configuring inventory items allows Mothernode to maintain the intended relationship between estimated costs, purchasing activity, actual costs, and final job profitability.
