Production Variances


In AX 2012, no matter how I change the production order, it is always posting to the substitution variance account. This makes no sense. Especially in the case of reporting bad quantity. According to AX Technet description, a reporting of bad quantity should post to the quantity variance account.

Why is AX always posting production variances as substitution variances? is there potentially something wrong with a setup I have overlooked?

Thank you in advance.


Is the item a standard cost item?

Yes it is…

Hopefully that isn’t the easy answer to the cause of this variance posting, although I am glad to have an intelligent AX costing resource answering my question.

My memory said that it only worked on standard costed items for all variances.

I assume your item group is configured with the different GL accounts?

Can you tell me the version and a quick example of a non-substitution variance going to the variance? So RAF 9 Production ended when started 10 (think that would be a valid one)

Item group is configured with the appropriate GL accounts.

What version are you looking for? AX version? It is R2 CU7, possibly CU8, I just do not remember if Microsoft has a CU8. I know we have the latest CU though.

Example: Production started for 10, report as finished 8 good 2 bad, end job. Difference between the started, 10, and the good RAF, 8, is coming out as a substitution variance. However, from the description provided by Microsoft for what a quantity variance is, I would have expected the 2 to go to that.

The above link is the technet site I am basing my knowledge off of for the correct variance to post to. Another point to add. When I have the scrap account method selected for ending production and reporting bad, the cost for the bad parts is still being thrown to the substitution variance instead of my scrap account. It all seems rather confusing.

Hi Mike

In the Inventory Parameters have you set on the BOM tab have you set cost breakdown = sub ledger and variances to standard = per cost group?

In the default order settings inventory tab is the standard order quantity >0 preferrably it is 10 if you make in 10’s! The item’s standard order quantity for inventory, acts as the default accounting lot size for amortizing constant costs in a BOM calculation and I believe impacts on the variance calculation. I would start by setting it to 10 and creating a variance again.


Thank you for your continued support.

Yes, I have the cost breakdown at sub ledger and variances to standard at per cost group

In my test, I do not like using even numbers for testing, so I set up standard order quantity of 7 as it was at 0. I then re-did my BOM calculation to ensure all cost calculations were up to date after the standard order quantity change. So I created a production order for 7, then reported as finished 4 good and 3 error quantity. Then ended the production order.

In my costing transactions, I can see a production quantity variance and a production substitution variance, however the numbers seem rather odd. I would have expected the quantity variance amount to equal the cost of 3 times my unit cost for the finished good, but it was only a fraction of that cost. The summation of my substitution variance and quantity variance was equal to 3 times the unit cost of the finished good. However, I am still unsure what it causing a substitution variance at all. Do the raw materials going into the item need some sort of standard issue quantity?

The standard issue quantity would come from the BOM, so if you make 7 and consume the quantity for 7 but make 4 and end production then I would expect the complete cost (standard) to be the variance - which is what you are saying it is. The question this is what is causing the division - there is no “substitution” during this process, it is a quantity variance, although I would have to recheck what each variance is supposed to capture.

As the posting is per cost group what are the cost groups of the components in the BOM - is there any correlation there?

If you had a BOM with 1 item at a cost of $10 and you started to make 8 and ended it with 7 with no indirect costs and a standard cost of $10 on the parent (lets say there is no route) and then where does the $10 go? The route will make up the standard cost of the parent - which will be in the costing version so check that, and then this cannot go to quantity variance. On the costing variance the cost will have been generated using a base lot size I believe - was this also 7 in your example? This would impact on the lot size variance posting. Basically check the BOM make up that has defined your standard cost!

All of the costs groups in my examples were cost group types of direct materials and no profit percentages.

Given your example test problem. I had a BOM with 1 item at a standard cost of $10 and started 8 and reported as finished 7 and ended 7 with the parent being a rolled-up cost of $10 as well (removed the route). When looking at the voucher transactions, no variance was posted at all for this order. However, when looking at the production variance form from the price calculations page I see the raw material had a -70 and positive 70 substitution variance. I guess this means they were cancelled out? The -70 was for a direct materials cost group of Mat-1 and the 70 was for a direct materials cost group of Res-1.

You mention a base lot size. Where would I see if this is 7 as well? The only 7 I had was the standard order quantity and also as the price quantity on the finished goods calculated cost.

Go to the parent item and run the calculation. On the general tab there is a quantity. In your test set the quantity to 7 and calculate the cost for the 7 so 7 is the base lot for the cost.

Just to clarify this is not something I have done, never really played with standard cost variances, just my interpretation of what I think the base setups are - no guarantees I am afraid [:D]

That is understood. I guess I have some rigorous testing to do

Thanks for your help!


Keep us updated - I may even get time to open the software and set something up, you never know [:D]

First point of observation. The system was started without using any BOM calculations for standard cost. The costs were all added in as a part of a data load process and no calculation was ever performed. This is why everything is a substitution variance. The system is obviously in a very early state.

Secondly, when I did do a complete calculation from bottom up for a finished good, I received a quantity variance when reporting good and bad quantity. The quantity variance was equal to the cost of the consumed raw materials minus the cost of the raw materials used by the goods reported as finished. (Started production for 3, Ended 2 good and 1 bad. Quantity variance equals the cost of raw material consumed for 3 started minus the cost of raw material for 2 good parts).

Not able to produce a lot size variance at all.

The lot size variance starts, I believe, when you make a quantity not of the lot size. So in your example you have a calculated cost based upon a quantity of 3, the setup costs and indirects are apportioned based upon this, then raise a production order for 2, and complete 2 but alter some of the cost elements to be more expensive, I believe elements of this are then posted to the lot size variance.