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Manufacturing Standard Costing- Variance Posting
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Member Posts: 2
Dear All,
I have this manufacturing standard costing case, kindly suggest.
Finished Goods item is : BICYCLE.
Raw material (Production BOM) for this item is : 1 pcs of TIRE (which has average costing).
Routing for this item uses 1 hour of work center time i.e. say, $10.
Company decides that standard cost for this item : $20 ($10 for raw material cost + $10 for capacity cost.)
They manually type in $20 on item standard cost field.
My question is, after the production order is completed i.e. consumption, capacity is posted and prod. order is turned to FINISHED, how system determines whether variance is related to capacity or material.
I found in above case, system always assumes material cost should be equal to the standard cost of item , i.e. if there is any capacity is posted, system simply reverses it as variance.
i.e.
Assuming avg cost of TIRE is $12 , system posts the material variance of +$8 and capacity variance of -$10.
In fact, expected variance should be only for material and that is also of -$2.
Am I missing on any setup or is this normal behavior?
Thanks for your help.
I have this manufacturing standard costing case, kindly suggest.
Finished Goods item is : BICYCLE.
Raw material (Production BOM) for this item is : 1 pcs of TIRE (which has average costing).
Routing for this item uses 1 hour of work center time i.e. say, $10.
Company decides that standard cost for this item : $20 ($10 for raw material cost + $10 for capacity cost.)
They manually type in $20 on item standard cost field.
My question is, after the production order is completed i.e. consumption, capacity is posted and prod. order is turned to FINISHED, how system determines whether variance is related to capacity or material.
I found in above case, system always assumes material cost should be equal to the standard cost of item , i.e. if there is any capacity is posted, system simply reverses it as variance.
i.e.
Assuming avg cost of TIRE is $12 , system posts the material variance of +$8 and capacity variance of -$10.
In fact, expected variance should be only for material and that is also of -$2.
Am I missing on any setup or is this normal behavior?
Thanks for your help.
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