An item's standard cost provides the basis for calculating purchase price variances at the time of purchase order receipt and invoice entry and for calculating production variances at the time of ending a production order.
- A purchase price variance is calculated at the time of purchase order receipt and reflects the difference between an item's standard cost and the purchase order price. A purchase price variance is also calculated at the time of invoice entry and reflects the difference between the purchase order price and the invoice price.
- Production variances are calculated at the time of ending a production order. They reflect the difference between the manufactured item's active cost record (at the time of ending the production order) and the actual consumption of material and operations to produce the good reported-as-finished quantity. The types of production variances include a , , , and .
You can optionally identify the cost group breakdown for each type of production variance. Use the variances to standard field on the form to select that variances should be per cost group. For example, you can identify quantity-related or price-related variances that are related to the cost groups for material, labor, and overhead. Production variances for a production order are displayed in the form and report.
Use the Standard cost variance analysisreport to view historical variances for standard cost items. Use the report to view historical variances by time period.
Transferring an item from one site to another site can cause a cost change variance when the item's costs differ between the two sites. Changing an item's standard cost (by activating a pending cost record for the item) can cause a revaluation of the item's inventory and work in process, as captured by the variance for inventory cost revaluation.
Use the form to define the ledger accounts that are related to variances. A separate tab identifies the different variances, and each variance's ledger account can be defined by item (or item group) and by cost group (or cost group type). These choices correspond to a table and group definition. For example, the ledger account for production price variance can be defined for a table (the cost group) or for a group (the cost group type), such as direct manufacturing. Prior to defining the inventory posting rules, you must use the form to enable you to define cost relations for tables, groups, and all.