Objectives:

This article shows the different types of standard cost posting types and the common sources for production variances.

Standard cost posting accounts:

Navigate to Inventory management -> Setup -> Posting -> Posting -> Standard cost variance.

Posting type

Description

Purchase price variance

A purchase price variance is calculated at the time of purchase order receipt and reflects the difference between an item's standard cost and the purchase order price.

 

A purchase price variance is also calculated at the time of invoice entry and reflects the difference between the purchase order price and the invoice price.

 

Inventory cost revaluation

Transactions post to this account as a result of activating a new standard cost price for an item.

Cost change variance

Transactions post to this account as a result of transferring inventory from one site to another site when the item's costs differ between the two sites.

 


The production variances are calculated after ending a production order for a standard cost item. Each production variance can stem from several sources as below:

Production lot size variance

A variance that is related to the differences between the standard cost calculation quantity and the production order quantity.

 

The variance reflects the differences in the amortization of constant costs. The common sources for a lot-size variance include the following:

•        The good quantity for a production order differs from the calculation quantity that is used in the standard cost calculation. The quantity provides the basis for amortizing constant costs.

•        The value of constant costs in the production order differs from the constant costs that are used in the standard cost calculation. The constant costs in the production order can be different for several reasons.

 

For example, the constant costs could reflect:

•        Manual changes to the production bill of materials (BOM) or route.

•        The selection of a different BOM version or route version when you are creating the production order.

•        Planned engineering changes to the BOM version or route version that is assigned to the item.

Production price variance

A Variance that is related to the differences between the costs that were used for standard cost calculations during start or estimation of the production order and the costs that were used for actual consumption transactions during the ending of the production order.

The common sources for a production-price variance include the following:

•        The cost category (and its cost-category price) for the reported consumption of a routing operation differs from the cost category that is used in the standard cost calculation.

•        The active cost for the cost-category price differs from the cost-category price that is used in the standard cost calculation.

 

Production quantity variance

A variance that is related to the differences between the quantities for components and operations that were used for standard cost calculations and the quantities that were used for actual consumption transactions.

 

The common sources for a production-quantity variance include the following:

•        Over-issue a material component or under-issue a material component.

•        Over-report time for a routing operation or under-report time for a routing operation.

•        Over-receive or under-receive the good quantity of the parent item relative to the order quantity, but issue components and report operations completely, based on the order quantity for the production order.

 

Production substitution variance

A variance that is related to the differences between the components and operations that were used for standard cost calculations and those that were used for actual consumption transactions.

 

For example, the substitution variance could reflect the actual consumption of a component that was not in the bills of material (BOM) for the standard cost calculation. 

 

The common sources for a production-substitution variance include the following:

•        Add a component manually to the production BOM, and report it as consumed.

•        Report an item as consumed, without adding it manually to the production BOM

•        Add a component manually to the production BOM, and report it as consumed.

•        Select a different BOM version when you are creating the production order, where the BOM version differs from the one that is used in the standard cost calculation.

•        Select a different route version when you are creating the production order, where the route version differs from the one that is used in the standard cost calculation.

 

Rounding variance

A variance that is related to a rounding difference

 

Analyzing production variances.

The information about detailed variances can help you understand the source of each variance

Analyze the production variances by using the Variance form by navigate to Production control -> Production orders -> All production orders -> Action pane -> Manage cost -> Standard cost transactions -> Variance.

Use the display options to view detailed variances by item and operations resource, or by cost group. You can also use the display options to view summarized variances. These display options are called single, multi, and total. The policy for cost breakdown in the inventory parameters determines whether the variances are tracked by cost group.