Production variances are calculated after you end a production order for a standard cost item. The variances reflect a comparison between the reported production activities and the standard cost calculation for the production item. The variances do not provide a comparison to the production order's estimated costs. The reported production activities include consumption of material and routing operations (and associated indirect costs) and the reported as finished quantity. Four types of variances are calculated: lot size variance, production quantity variance, production price variance, and production substitution variance. The following diagram identifies the four variances that account for the difference between a production order's actual costs and the calculated costs within the item's cost record at the time of ending the production order.
Analyze the production variances by using the form or the report. Use the display options to view detailed variances by item/work center or by cost group, or to view summarized variances. These display options are termed single, multi, and total. The cost breakdown policy within the inventory parameters determines whether the variances will be tracked by cost group.
The detailed variance information provides one tool for understanding the source of each variance. In order to anticipate variances prior to ending a production order, analyze the detailed information that is provided in the report.