All operations in the production process consists of activities. These activities have a cost center defined and how much time of that cost center is used. Each cost center has the employees that are part of the cost center defined, as well as the machines used in the cost center and the indirect costs such as electricity, etc. Based on these components a cost per hour related to the cost center can be defined. Based on the use of the cost center during production, a cost per produced unit is added to the total cost of the unit.
In order to set up the cost center, the following information has to be set up first:
- Salary categories and related cost for the employees that are related to the cost center
- All machines that are related to the cost center
- All indirect cost components are defined