MO Variance

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Posted on by CTC GP

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I have trouble to understand how GP calculated the Cost in WIP and Cost Consumed, my GL ledger variance is so big. I got document from Microsoft Customer Support, it has good description of Production Cost, but Cost in WIP and Cost Consumed, the explanation is so vague. We are standard cost item, and our accounting are upset to see the big GL Variance.

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Mahmoud Saadi 32,738 on at

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Can you share the document which you refer to, it could be the starting point of our discussion.

I would personally love to join this discussion. No doubt that Mr. Frank Hamelly would play an essential role as well

Your feedback is highly appreciated,

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Frank Hamelly | MVP... 46,625 Super User 2025 Season 2 on at

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Thank you Mahmoud. CTC, the value in WIP is composed of inventory items issued to manufacturing orders. WIP costs are decremented and moved to Finished Goods inventory upon MO receipt. Closing the MO moves any variances between MO inputs and outputs to a production variance account, which should be setup as part of manufacturing setup. Are MOs being received and closed as they are completed?

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CTC GLOBAL 30 on at

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In MO Variance Tab,

Production Cost : Material is from pick list, labor is from working router

Cost Put into WIP: Material is from Production cost plus shrinkage, labor I have no idea how Microsoft did it

Cost Consumed: cost taking out of WIP, but Microsoft doesn't say how much to take out WIP.

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CTC GLOBAL 30 on at

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How to upload the document, it is very convoluted document, my response to Microsoft after read the document for 3 times is as follows:

I read the document twice, it is very hard to understand the document, it is more like some developer’s notes and polished by a technical writer, not much coherency. I find some contradictory and it is related to the GL ledger variance (GL ledger variance is what accounting sees and not comfortable with at all).

The document doesn’t say how to calculate “Costs Consumed”, it only says it “GL Variance concerned with cost taking out of WIP”, but how to calculate the quantity to taking out WIP?

The document says” In the case of standard cost items, the costs are always taken out of WIP at the finished goods standard cost”, does it mean for the above negative labor variance, our stand cost for the item labor is too low?

Then the document in the same section talking about GL variance, it repeats the calculation of Production Variance, Page 24-28 is same as page 6-10. Why when calculate GL Variance, you need to look at picklist and MO working routing sequence, is it a document mistake, cut and paste under wrong context?

Overall, I think the document explains how to calculate production costs well, and doesn’t explain much on how to calculate “Cost in WIP’ and “cost consumed”.

And the GL variance is caused by Costs Consumed – cost in WIP, so it doesn’t explain why we have big negative labor variance.

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CTC GLOBAL 30 on at

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Would like to upload the document, Microsoft Cust. Support can't handle the issue, it outgrow their level of support, want us to go with partner and submit an advisory ticket, and we will be charged on hourly basis. I think it is Microsoft design, and we should not pay to just get somewhat explanation.

We are std.cost system, GP can advise/propose a cost when you do std. cost change, I suspect the proposed cost by GP is based on 6 month average, so it is related to the volumn, if you have low volumn in the past and use GP's proposed cost, the proposed cost will be higher, so if in the coming months, your volumn is high (per MO), then you will see big labor variance. It is as if in the past 6 month, you are making baby shoes, then you got a std. cost, then next month, you are making bigger adult shoes, so if you apply baby shoes' std. cost against adult shoes' MO, the MO will show favorable variance. (positive GL variance)

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Frank Hamelly | MVP... 46,625 Super User 2025 Season 2 on at

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CTC, it all starts with the Bill of Material and Routing.

Production Cost: The Pick List is built based on the Bill of Material components, quantities and cost. You typically issue material to the MO based on the Pick List, unless there is a reason to vary from the Pick List. Shrinkage is set in the Bill of Material.

The Routing, which contains your Work Centers, Machine ID's, etc., determines the labor & overhead component that is added to the MO.

Cost Put into WIP: When you release an MO to production, the Pick List (i.e., BOM) material and the labor, overhead & machine costs from the Routing are the inputs to WIP.

Cost Consumed: The cost taken out of WIP is the cost of all material and labor added to WIP, either based on the standard values coming from the BOM and Routing, or standard values + any additional materials and labor issued to the MO during the production process. The calculation in simplest terms is

(total cost issued to WIP/total MO quantity * MO Receipt quantity) = Cost relieved (consumed) from WIP

If costs issued to the MO exceed the standard costs per the BOM and Routing, you have a production variance, which is recognized as a variance to your standard cost, based on the BOM + Routing costs.

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CTC GLOBAL 30 on at

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For material, our MO receipt qty is always between start qty and end qty, the difference of start qty and end qty is the percent of shrinkage we build in the BOM, which is 3%. so if we plugged in good std. cost in BOM, our material variance should be small (less than 3% my guess), this is the case. But our labor variance is +15 to +20% percent. This means, if my ratio of MO Receipt quantity/total MO quantity is well controlled within 97%, the cost cosumed should be around 97% of total cost issued to WIP also. The GP MO variance screen only confirms the tolerance for material, not labor. Why we consum more labor than put into WIP, my guess is that, we don't collect labor time data, so it the MO is scheduled to finish in 20 days, but due to slowness in data entry, e.g, the MO is completed in real work in Friday,, but our production guys may wait till a few days later to receipt MO, so in GP, your labor is over run, then you on GP paper value, you consumed more labor, I want Microsoft to confirm how they guess the labor consumed if I am not colleting labor data.

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Redbeard 12,931 on at

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I don't know if it's just late, or if I read this thread wrong, but I have a question about your variances.

It seems your labor variance is a major part of the problem, and you seemed to indicate you are not collecting labor data using Time Entry or Data Collection windows - "my guess is that, we don't collect labor time data."

If you're not collecting labor data, and you have standard labor costs associated with your routing sequences, then you should see a positive variance every time you process a work order, and it would be substantial.

A positive variance is created when it takes less material or labor to make a product than expected. If you expect to incur $50 in labor for a particular transaction, based on your standards and you do no data collection, your labor cost is effectively zero, creating a $50 positive variance.

I know of no standard feature in GP, which would increase your labor cost based on how long a work order stays open, or decrease your labor cost if it is closed sooner than expected.

Are you doing data collection for labor transactions?

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CTC GLOBAL 30 on at

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Harry Lee, you are not late nor read the discussion thread wrong, I have +15 to +25% labor variance, and we don't do data collection. I think your $50 example is almost there. But in the real GP, I guess Microsoft doesn't put effective 0 as consumed labor, may be they estimate 50% from WIP labor as baseline for labor consumed. I insisted on Microsoft explaining to me how they calculate labor consumed in the context of no labor data collection, they refused.

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Redbeard 12,931 on at

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Glad I wasn't off base.

The configuration options for Bill of Materials, Routing, Machines, Work Centers, etc. are so numerous, interdependent and convoluted, I can understand why Microsoft labeled this issue a consulting responsibility. I have a notion you may have settings (i.e. fixed overhead) which don't require data collection that might be causing the inconsistencies. Without access to your system, and specific information, members of this forum can provide only their best educated guesses.

If a client of mine came to me and said, Harry, explain why we have a 15% positive variance when we make X number of Y finished goods - I should know the answer already. Because, I guided them through the implementation decisions resulting in the outcome. If I didn't know, for some reason, I would make it my mission to be able to answer that specific question. It is likely, the answer to that specific question will lead to a general explanation of your problem(s).

I strongly suggest reaching out to your Microsoft Dynamics GP consultant and assigning them that mission.

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