Dynamics Community Forum Thread Details

Standard Cost Rollups and MO Variances

I need some confirmation from accountant type folks.

I have a manufacturing client - they backflush all materials and labor for all mfg'd items.

Here's the scenario -

Open a MO on Jan 1st for FG A - ending qty = 100.

Standard cost on January 1st is $10 material, $20 labor for a total of $30.

They partially receive 10 on Jan. 2nd @ $30 - which is okay.

They partially receive 10 on Jan 3rd @ $30 which is okay.

They roll up and re-value all items on Jan 4th - FG A has a new std - $12 material and $20 labor - total of $32.

They partially receive on January 5th qty of 10 @ $32 which is okay.

Remember - totally backflushed environment - if they close the MO on January 5th - I think there should be no variances - after all they backflush labor and materials. The raw materials used on the January 5th receipt were re-valued on January 4th.

However, in this scenario the system triggerred a MO Variance.............$20 material which is the difference between $32 receipt and the original $30 standard..........

I think this is wrong from a transactional processing point of view and from a financial accounting point of view.

Thank you in advance for any comments you folks might have.

Bron,

I'm not much of an accountant, but the system is "working as designed". It will consume whatever is the standard at the time the receipt is done.

As for the accounting part, I've had a similar discussion with the controller of a customer of mine. My amateur shoot-from-the-hip conclusion in that case was that a different customer, the one that prompted the conversation, was using standard costing with an actual costing mindset.

The customer in question was make-to-stock. When I was training them they couldn't believe that all their stock would be revalued. Their GAAP thinking was that the inventory went in at a given cost and should remain the same. The controller I talked to said this made sense with standard costing, though. I don't remember the details, but obviously, there must be many make-to-stock companies that have inventory and use standard costing.

I'm thinking perhaps, accounting-wise, something similar applies here in that the standard is what it is at the time of receipt and any variances are handled against the COGS as would be the case with my example customer when they would roll standards.

Maybe a real accountant can give a better answer, but just trying to help.

Thanks,

John Chastain

MMLJ Consulting, LLC

636-734-7935

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