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Production Variance

  • 24 January 2022
  • 8 replies
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Userlevel 3
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  • Jr Varsity II
  • 103 replies

Hi Sir

We would like to know what mean of production variance.

As we do a disassembly transaction and notice that system auto generate “ production variance” May  i know what is this for? Please refer to the below.

If based on below journal , does it mean the production variance 21.44 is reduce the inventory value as the double entry is credit account code14720 inventory.

 

 

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Best answer by PaulMainard55 27 January 2022, 18:24

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Userlevel 2
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Hi all,

In addition to the above, as an idea, for some clients, the production variance may affect the average cost of a product which may impact its valuation.

For this reason, a possible solution is to build a custom GI and Business Event that posts any production variance back to the finished item’s (Kit) asset account. For example, if there was a debit entry to the Production Variance account (as a result of Kit Disassembly), the business event triggers an Inventory Cost-only Adjustment (positive) back to the Kit Item. If it was a credit entry, the adjustment would be negative (i.e., to deduct the kit item cost).

This would help ensure that the kit disassembly would act as a reversal of the original kit assembly, bringing the average cost to that before the original kit assembly.

 

Hope this helps!

Nigel Pace

Userlevel 4
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Hi Erin,

Thanks for responding to my post.  I realized later that indeed it looked like you were disassembling a kit and not a production order.  Sorry about that.

The production variance is likely occuring not from your set-up of your reason codes, which is simply a mapping of the costs to a different account, as Mark pointed out (Hi Mark), but because Acumatica detected a difference in the costs of the inventory inventory items being disassembled vs the cost of bringing the kit components back into inventory.

These cost “variances” can occur for a number of different reasons.  In order to know more, we would need to know the costing methods being used for the components in your kit, as well as the kit itself.  For example, if you’re using standard cost, if could simply be a difference between the standard costs of the components and that of your kit.  

Another possibility is based on the set-up of the warehouse in which the disassembly took place, along with the inventory levels of the kit components being placed back into inventory.  

The above screenshot is from the Warehouse set-up screen and the highlighted field tells Acumatica what cost to use when placing “returned” product back into inventory.  The system can either used the last received cost or the average cost of the product.  This can be a little complicated and requires a little digging into the costing method set-up of your items as well as an understanding of the cost layers and inventory levels of your items to know the truth.  

Irrespective of the actual inventory adjustment amount and the calculation used to determine that amount, the simple answer is that Acumatica found a difference in the costs of the disassembled kit and the sum of the costs of the components being placed back into inventory.

Hopefully this will provide you with the guidance necessary to troubleshoot the information further.

Good luck.

Userlevel 5
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Hello Erin

When a kit disassembly is being released, the kit item is issues according to its valuation method, while *multiple* component items are being received. Since you cannot spread 1 cost to multiple receipt cost, the system posts components receipts at their “default cost” (determined as either last or average cost according to the warehouse setup).

(updated)
The difference between the component issue cost and the sum of receipt cost is a production variance which you observe. This variance is actually posted to the account specified in the disassembly reason code. In the Sales  Demo , the inventory account is specified there (https://uploads-us-west-2.insided.com/acumatica-en/attachment/d2200d67-e7e8-49a2-8de9-8d63cca3ab3a.png) , but I believe some i/e account should be specified instead

 

Hi Mvolstheyn

Thanks for your explanation 

I notice that the reason code for disassembly is 12100 Inventory Assets.  Which mean this production variance is assets NOT cost?

 

 

Hi Erin

As I wrote, the current setup In the Sales  Demo is not correct.  Normally, you should specify some I/E account, Not sure it should be the COGS, because this is a ‘technical’ variance (similar to the standard cost variance) not related to sales. I would recommend adding a dedicated account to control the amount of this variance

Userlevel 3
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Hi Erin,

A Production Variance is simply a measurement on performance comparing Actual Costs vs Planned Costs.  Planned Costs are calculated based on the costs of materials and labor as found in your Bill of Materils. These costs are updated by running your Cost Roll process, which looks at your current inventory costs and rolls these costs in your BOM. 

Production Variances have no financial impact to you GL, nor is reflected in an Inventory Adjustment. It’s merely a indicator that your Actual costs are different than the expected costs of your disassembly order. 
 

i hope this helps. 

Hi Plmainard

Thank you very much for the reply.

By the way , the reason code for the production variance should book under COST or Inventory Assets?

I am abit confusion about this

Userlevel 3
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Hello Erin

When a kit disassembly is being released, the kit item is issues according to its valuation method, while *multiple* component items are being received. Since you cannot spread 1 cost to multiple receipt cost, the system posts components receipts at their “default cost” (determined as either last or average cost according to the warehouse setup).

(updated)
The difference between the component issue cost and the sum of receipt cost is a production variance which you observe. This variance is actually posted to the account specified in the disassembly reason code. In the Sales  Demo , the inventory account is specified there (https://uploads-us-west-2.insided.com/acumatica-en/attachment/d2200d67-e7e8-49a2-8de9-8d63cca3ab3a.png) , but I believe some i/e account should be specified instead

 

Hi Mvolstheyn

Thanks for your explanation 

I notice that the reason code for disassembly is 12100 Inventory Assets.  Which mean this production variance is assets NOT cost?

 

 

Userlevel 5
Badge +3

Hello Erin

When a kit disassembly is being released, the kit item is issues according to its valuation method, while *multiple* component items are being received. Since you cannot spread 1 cost to multiple receipt cost, the system posts components receipts at their “default cost” (determined as either last or average cost according to the warehouse setup).

(updated)
The difference between the component issue cost and the sum of receipt cost is a production variance which you observe. This variance is actually posted to the account specified in the disassembly reason code. In the Sales  Demo , the inventory account is specified there (https://uploads-us-west-2.insided.com/acumatica-en/attachment/d2200d67-e7e8-49a2-8de9-8d63cca3ab3a.png) , but I believe some i/e account should be specified instead

 

Userlevel 3
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Hi sir 

currently the production variance is in distribution module ( not manufacturing module ) where we do Kitting , dissembly the finished good and system auto generate the product variance for the different.

may I know this “production Variance “ where did the cost go? 
 

currently the inventory figure  in financial Balance sheet is not tally with the Inventory Historical Value report , the different amount is the production variance 

 

not sure who can assist in this .

 

thank you 

 

Userlevel 4
Badge +2

Hi Erin,

A Production Variance is simply a measurement on performance comparing Actual Costs vs Planned Costs.  Planned Costs are calculated based on the costs of materials and labor as found in your Bill of Materils. These costs are updated by running your Cost Roll process, which looks at your current inventory costs and rolls these costs in your BOM. 

Production Variances have no financial impact to you GL, nor is reflected in an Inventory Adjustment. It’s merely a indicator that your Actual costs are different than the expected costs of your disassembly order. 
 

i hope this helps. 

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