Standard costing and variances

Finance and Operations/AX User Forum
1

Hello,

I am attempting to setup the system to track production variances caused by standard costing. I have seen several ways to do this, but curious the best.

The situation: Every item, work center, and BOM will have a standard cost applied to all sites. All production orders will need to be costed with these standard costs. The actual production will not use the same costs as the standard. (The standard cost might include .05 overhead and .20 labor, while the production would be .07 and .17 (leading to a price variance of .02 and .03)). I need to track these variance separately.

Where it stands: I know I can track the variances so long as the actual production cost of a BOM has a calculated standard cost to compare to. I know I can track the separate costs using the profile and specifying posting accounts based on the cost group.

Issues: I can accomplish this by having two routes/versions that build a BOM; one with “Standard” cost categories, the other with “Production” cost categories. Activate the price with standard, produce with the other. OR I can use the fallback. Have two versions, one with all standard costs in it (item, boms, cost categories), the other set to fallback to the standard and only house the production cost categories. When producing it grabs the standard BOM, calculated at the standard version, but actually uses the production cost categories, leading to the variance.

Which is best, or is there a better idea that has escaped me? Thanks in advance. The real issue is to capture the variance by cost group/categories, and that the real productions costs are known, not some hap stance from over/under consumption or RAF. We know the labor cost is higher/lower than the standard we want to cost at, we still want that variance.

2

I presume you are using a costing version to base the standard cost calcualation? Then you are running actual production. Why does the standard contain different costs to the standard, surely you have standard and standard and then you track variances with the overheads based upon the work undertaken? As for the two approaches it depends what you want, but I would have an activated standard cost in the version and track variances to this agreed stadnard - the fallback cost could be easily altered. Also not sure how that one cost would handle variance by cost categories, but perhaps you have tried this?

3

Thanks for the response, I’ve been reading this forum long enough, I expected your input…

AdamRoue

I presume you are using a costing version to base the standard cost calculation? Then you are running actual production.

Yes. Unless “Actual Production” is a setting. We are calulating and activating a standard cost in a cost version, then producing which has different costs, but is costed with the standard.

Why does the standard contain different costs to the standard, surely you have standard and standard and then you track variances with the overheads based upon the work undertaken?

This is due to the company wide standard. We have set X as what it should cost, and any differences due to plants’ machinery or labor rates are the variances. Basically, it is the ideal cost, and keeps the lines in check.

As for the two approaches it depends what you want, but I would have an activated standard cost in the version and track variances to this agreed standard - the fallback cost could be easily altered.

This is the issue, when I go to calculate a BOM at site A it needs a route at site A. So I need two cost categories/costs for process X at site A. The standard cost of process X, and the production cost of process X. But you can’t have two site specific costs active for the same cost category. Which leaves me with two routes, or two cost versions, or a phantom site to house the standard costs The fallback seems to work; It is similar to the layers in AX, it first looks at Version 1, finds production costs when running production, then costs with the active BOM calc in Version 2, which has all the standards.

Also not sure how that one cost would handle variance by cost categories, but perhaps you have tried this?

Yes, this works. Using the posting profile I am able to specify where to post what variances by situation. So long as the standard cost is calculated it does by comparing the production costs to the standard, with tracks variances by each section of the calculation.

Out of curiosity, if you were to setup this standard costing system and track production variances, how would you? For some parameters:

-Machine A costs $1.00 per hour at site X

-Machine A cost $1.10 per hour at site Y

-We standard cost machine A, at both sites, with the cost per hour of .90 cents.

-There is no manually entry of any cost on a journal. All costs are stored and costed automaticlly.

4

Not sure I understand the concept here. Are you saying there is a company wide standard cost. Then you have multiple sites and there are standard costs per site, and you are tracking the variances as the differences of the site, but if this is the case how would you ever know whether the variance is to standard or to the standard standard when caused by site differences, processing differences or cost differneces?

How is your dimension group set for financial inventory? At the site level means it is a standard cost per site, but then you are not specifying it and letting the fallback go back to the item card cost? Still not sure how if you never calculate the standard how the system then posts variances, it must do it to the estimated cost of production, which could be different to the standard on the item record. I do not have the time to set this up and test it, but an interesting concept.

The routes are site specific, they have to be as they are independent physical locations - you cannot have the same resource/machine in more than one site. Therefore you need a route per site, this then would mean the costing version would hold a cost per site depending upon teh differences in machine cost and indirect costs.

I am guessing from this that your sites are actually not physically different and you are splitting for business reasons, departments/business streams etc. If I was to setup a standard cost system to track variances I would have one BOM, but it is mandatory to have a route per site - the work centres are attached to a site and can only have one. The BOM of course is different. So if I had machine A and machine A they would be TWO work centres attached to the same site, but they would have the same cost category defining the 0.90 cents. Automatic costing and posting is not an issue, but you need a route per site to standard cost correctly for production across multiple sites.

5

In that setup, where would you apply the 1.10 and 1.00? How would it grab those when it run production?

6

Machine A would be called MACA98 it would have a cost category for process, the cost category would have an hourly rate of 1.10

Machine A in the other site would be MACA99 it would have a cost category for process, the cost category would have an hourly rate of 1.00

The same cost category of PROCESS can be set on each machine, one defined with a rate of 1.10 for the first site, one for 1.00 for the second. Look at the cost category pricing on the price button of the costing version.