E8.9 Relationship between SKU level standard cost with Manufacturing Material Variance

ZESSA-Click

Member
Hi all, I am new to this form, we are getting huge Manufacturing Material Variance in GL account 541000 approx $ 1mn per month from Jan to Nov 2021.

We know that we have not updated some of the fixed supply chain cost in the costing structure which is the reason.

Our cost at totality level seems ok, but I think SKU level cost is understated, Is my understanding is correct ?

Regards
 

RussellCodlin

Reputable Poster
Manufacturing variances come in all sorts of shapes and sizes. Firstly, work out whether you've got planned, engineering, actual or other variances. Secondly, check your variance reports compared to the GL. You may find that whilst the account says Manufacturing Material Variance it may be that all manufacturing variances are just getting dumped into a single account so review your DMAAI's.

If the accounting set up is accurate and you're getting a very large actual material variance then the most likely cause is that you've got items on the BOM that are not being issued. This may be because manual issues are not occurring or alternatively backflush is not running. You'd expect this to also cause your inventory levels to be completely wrong but it may be that raw material items are being receipted in on a non-stock line type which would hide this. If you're getting very large other material variances that just means that you're not completing the planned amount and not reposting work order costs on completion.

If you're really struggling to understand manufacturing costs and it is not already enabled, then it might be worth turning on work order subledgers so that you can monitor and investigate work orders more easily. Just don't do this without understanding the implications to your financial reporting (and system performance if you have a lot of work orders and an undercooked JDE system).
 
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