Costing, work in progress and variances
Understand how an order's cost builds up, what sits in WIP, and what the variances at close mean.
Required permission: manufacturing.cost.view; manufacturing.close (close orders)
Before you begin
- Cost screens and figures are visible only with manufacturing.cost.view. Without it, cost columns, the Costs tab and cost reports are empty or hidden.
- To post to the ledger, Post production costs to the ledger (WIP) must be ticked in Production Settings. See Production settings.
How cost builds up
| Cost | Comes from |
|---|---|
| Material | Components issued and backflushed, valued at their average cost |
| Labour | Hours worked x labour rate x operators |
| Machine | Hours x machine rate |
| Overhead | A percentage applied to labour and machine time |
| Subcontract | Vendor service on receipt |
| Scrap and rework | Scrap records; abnormal scrap leaves WIP |
The estimate is made when the order is created or changed. Worked example, 10 tables: material 1,840.00; labour 5.5 h x 45 = 247.50; machine 2.5 h x 30 = 75.00; overhead 10 % x (1,840.00 + 247.50 + 75.00) = 216.25. Total AED 2,378.75, AED 237.88 a table.
The actual cost builds as material is issued and time is booked. Overhead applied while working is the percentage of labour and machine only, so on the example order actual overhead is 32.25, not 216.25.
Steps
Read an order's costs
- Open the order and the Costs tab.
- See Estimated, Actual and Variance per category, WIP held, the amount sent to finished goods, and the cost ledger lines with dates.
Close an order
- Complete the order (see Register production, complete and close an order).
- Click Close (needs manufacturing.close).
- Open Costs and read Variances at close.
Review across orders
Under Manufacturing > Costing:
- Standard Cost compares each active BOM's rolled-up cost per unit (material, labour, machine, overhead) with the product's cost. The difference is red when positive and green when negative.
- Estimated Cost, Actual Cost and Production Cost Analysis open the Standard vs Actual Cost report.
- WIP shows per order the raw material issued, labour, machine, overhead and subcontract cost applied, the part moved to finished goods and the remaining WIP.
- Variances lists variances settled at order close.
What happens next
- Each receipt moves cost from WIP to finished goods. The last receipt takes the exact remaining WIP, so finished goods equal total actual cost.
- At Close, any WIP still held is cleared into variances so WIP is 0.00. Variance types include material usage, material price, labour efficiency, labour rate, machine, overhead and yield. In the example, overhead shows -184.00 (actual 32.25 against estimate 216.25) and yield +184.00, which settle to 0.00 together.
- With posting on, each cost row posts a balanced journal. Issue: debit WIP 1250, credit the component's stock account. Labour, machine and overhead: debit 1250, credit applied accounts 5250, 5255, 5260. Variance: debit 5310 and credit 1250 (or the opposite). The Accounting Entries smart button counts them.
- Example clearing: AED 50.00 of material issued after the last receipt becomes a variance of -50.00; with posting on, debit Production variance 5310 50.00 and credit WIP 1250 50.00.
Good to know
- The variance permission manufacturing.variance.view exists, but variances currently appear to anyone with cost permission.
- The Production Status & Cost (R048) report proves each order: opening plus cost, less output and expense, equals closing WIP, with a Reconciles column. See Reports and lot traceability.
- Work centre rates are frozen on each work order, so a rate change affects only new work orders.
- Normal scrap stays in product cost; abnormal scrap goes to expense.