Standard cost and variances in production in Microsoft Dynamics 365 Finance and Operations

Standard cost and variances in production in Microsoft Dynamics 365 Finance and Operations

3 variances:

• 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.

Standard cost variances are;

• Production lot size variance

  • 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 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

• Production price variance
  • 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.
• Production quantity variance
  • 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.
• Production substitution variance

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

• Rounding variance
  • related to a rounding difference
  • rounding adjustment is done on the current on-hand inventory, which does not have a specific transaction date, and therefore it is always posted as at the system date.
  • If the variance were posted as at the transaction date, the system would potentially have to recalculate all other rounding posted since that date.
    • This would require logic similar to that in the inventory close process to be executed at the time of posting, which would increase the response time greatly and prevent other transactions being posted until it completed