Exploring Standard Cost and Variances

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Exploring Standard Cost and Variances






















































Gary Morales/Michaela Sdunek
March 23, 2004
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Standard Costing

• GL Cost Set only
• What an item should cost
• Not automatically updated by the system
• Generates Variances
• Used to calculate COGS
• Used to value inventory

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Standard Costing Elements

• Material
• Labor
• Burden (variable overhead)
• Overhead (fixed overhead)
• Subcontract

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Standard Costing

• Every Element has
• This Level
• Cost to obtain or produce an item
• Lower Level
• Costs of all purchased materials used in the
  final assembly
• Any subassemblies
• Lower level labor, burden, and subcontract are
  developed from the cost of making any lower-level
  subassemblies
• Level is based on Product Structure

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Standard Costs
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Standard Costs

• Material
• Represents the cost of purchased materials
• For a purchased item, the material cost is
  maintained in this level material field manually
• For manufactured items, the material cost is
  maintained in the lower level material field
  manually by rolling product structures

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Standard Costs

• Labor
• Represents the labor cost applied to this
  product, including setup labor
• Labor cost is calculated from labor rates and
  run/setup hours at each operation in the items
  routing
• Updated at this level by routing rollup
• Updated at lower level by product structure rollup

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Standard Costs

• Burden
• Represents the variable overhead applied to the
  item
• Calculated based on labor and/or machine burden
  rates
• Updated at this level by routing rollup
• Updated at lower level by product structure rollup

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Standard Costs

• Overhead
• Represents the fixed overhead cost for the item
• Can be calculated as a percentage of other cost
  categories
• Maintained manually for each item
• Updated at lower level by product structure rollup

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Standard Costs

• Subcontract
• Represents the cost of outside processing for an
  operation in a products routing
• This level updated by routing rollup
• Lower level updated by product structure rollup

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Variances

• Materials
• Purchase Price Variance
• CAUSE PO Receipt
• EFFECT Difference between std rate _at_ this level
  and PO price

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Material-Standard Cost
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Variances

• Materials
• Material Rate Variance
• CAUSE Components/Raw issued from another site
  with different costs
• EFFECT Difference between std cost _at_
  manufacturing site and standard cost _at_ supplying
  site times qty issued

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Material-Standard Cost
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Variances

• Materials
• Material Usage Variance
• CAUSE WO Close
• EFFECT Qty per on a product structure times how
  many were produced vs. actually issued

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Product Structure
Also called Parent Level or This Level
Level 0
Finished Good, Exhaust Manifold
Level 1
Manufactured 1 manifold but instead of using 1
manufactured flange, 2 were issued
005 Runners 1.0
007 Tube 1.0
006 Rockers 1.0
Level 2
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Variances

• Labor
• Labor Rate Variance
• CAUSE WO Close, Labor Feedback
• EFFECT Std work center rate vs. actual labor
  rate (employees actual pay rate) times actual
  hours

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14.5 Work Center Maintenance
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Variances

• Labor
• Labor Usage Variance
• CAUSE WO Close
• EFFECT Std labor run setup on the routing
  operation times pcs produced vs. actual labor run
  setup

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Variances

• Burden
• Burden Usage Variance
• CAUSE WO Close
• EFFECT Std labor run setup on the routing
  operation times pcs produced vs. actual labor run
  setup

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14.5 Work Center Maintenance
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Variances

• Burden
• Burden Rate Variance
• CAUSE WO Close, Labor Feedback
• EFFECT Labor burden (actual std labor rate)
  times actual labor hours (computed only when
  using Payroll module)

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14.5 Work Center Maintenance
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Variances

• Subcontract
• Subcontract Rate Variance
• CAUSE PO Receipt
• EFFECT Subcontract std rate on the routing
  operation vs. actual rate from purchase order

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Subcontracting Requirements
Routing Operations
Subcontract fields
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Variances

• Subcontract
• Subcontract Usage Variance
• CAUSE PO Receipt
• EFFECT Subcontract pcs processed on the routing
  operation vs. received back on the purchase order

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Subcontract purchase order information
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Variances

• Method Change Variance
• CAUSE WO Close
• EFFECT Residual left after all actual costs have
  been deducted from standard costs plus variances

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Summary

• Std Costs and Cost Elements are the base
  information to calculate variances against
• Product Structure Routing Cost Rollups
• Product Structures contain materials elements
• Routings contain the labor and burden rates
• Material Rate Usage Variance
• Labor Rate Usage Variance
• Burden Rate Usage Variance
• Subcontract Rate Usage Variance
• Method Change Variance

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Questions?
Thank you for your time!
Gary Morales/Michaela Sdunek
March 23, 2004