Question

Debate on Manufacturing Labour Variance

G
Userlevel 3

We are having issues with the definition and calculations of Manufacturing Variance, so I am asking the group how they define Manufacturing Variance.

In the Red corner, we have a person building PowerBI reports, taking the Actual Job Operation hours and comparing them to the Estimated Job Operation hours.  They take the delta and multiply this value by our fully burdened labor rate.  {(Actual Job Hours - Estimated Job Hours) * Fully burdened labor rate}

A positive value indicates the actual labor hours booked, is greater than the estimated labor hours.

A negative value indicates the actual labor hours booked is less than the estimated labor hours.

The individual is sharing these reports with the management team and has titled the report Labor Variance.

In the Blue corner, we have the CFO reporting on the G/L balances for Labor Variance.  Unfortunately, we are dumping variances for labor, labor burden, material, material burden, rework, and some PPV into our Manufacturing Variance account, so there is no easy way to show only labor variances from this account.  Add to the mix, Epicor calculates labor variance on the actual labor booked in the job, against the Standard Labor cost of the manufactured item.  During the Capture Cost process, this delta hits the Manufacturing Variance account and shows in the G/L as a “Periodic Posting”.

We have tried to inform the PowerBI builder that they are not presenting the correct Labor Variance picture to management, but they believe they are, since they are taking the hours booked in the job and comparing to the estimated hours.  The estimated hours, in my mind, are only there for the scheduling engine and have no real impact on Labor Variance, as Epicor does not compare to the estimated hours, but to the labor value in the items’ standard cost.

Has anyone fought this same fight?

How does your company investigate and filter through the noise of manufacturing variance to get to real measurable data to analyze for labor and material variance?

Thanks.

Glenn Owers Sr. Business Analyst Safran Electronics & Defense Canada Peterborough, ON Canada Version: 2021.2..23

7 replies

P
Userlevel 3

Several quick comments:

  1. end the debate by changing your GL Control codes on product group, to separate the manufacturing variances by cost category (Labor, Burden, Matl, Sub).
  2. Be sure everybody understands that the normal method for calculating standard cost is to use the costing workbench.  It will calculate the standard cost using the method of manufacturing which is what drives the estimated labor on the jobs.  Of course, for setup, these will vary with the lot size.
  3. The mathematical way the cost accountant is doing the calc should be considered an ESTIMATE of variance only as there are a lot of factors that can make different answers, such as: crew size, labor rate of individual clocked onto job, labor rate of resource group, setup/costing lot size vs job quantity (and the list goes on), timing of job closing and Capture COS.
Paul Jackson CFO Aseptico Woodinville WA
G
Userlevel 3

Thanks @pjackson for the information.

We have discussed separating the variance costs into separate buckets as you suggest, but we are not really sure where or how to start that process.  Maybe we should contact our Epicor Financial consultant to review.

We use the Costing Workbench to handle our costing changes at the beginning of the year and throughout the year if we introduce new raw material items to our process.

One other item we have discovered, the Actual Job Labor hours, include all ReWork hours, if they are identified as ReWork.  In order to get a clear picture, the PowerBI person is backing out ReWork from the total Job Labor hours.  The individual reports the ReWork hours separately.  When dumping the Labor Variance into our Manufacturing Variance account via Capture Cost, Epicor includes ReWork in the total labor hours to compare to the Standard Cost.  To me this makes sense, as any ReWork hours are a variance, since they are not planned.

From my perspective, the PowerBI individual can use their data on ReWork to highlight how much we are spending on ReWork due to design or process issues.  Any reduction in ReWork hours is a win and will decrease our costs 

Glenn Owers Sr. Business Analyst Safran Electronics & Defense Canada Peterborough, ON Canada Version: 2021.2..23
P
Userlevel 3

In addition to working with a financial consultant, I recommend attending Epicor Insights where there are likely some sessions that would help.

Paul Jackson CFO Aseptico Woodinville WA
G
Userlevel 3

Thanks for the tip @pjackson .  I am heading to Insights this year, so I will have to review the available sessions or possibly find someone to talk with 1:1 on this issue.

Glenn Owers Sr. Business Analyst Safran Electronics & Defense Canada Peterborough, ON Canada Version: 2021.2..23
A
Userlevel 1

Hi Glenn,
This is a common road-block that I have found two solutions for, with regards to Periodic Posting and Variance Tracking.
Our business has GL Control accounts that are specific to each Variance Type, but you aren’t really able to drill down on periodic posting and include source document info. 
Unless you either:
-Buy and implement Spreadsheet Server
or
-Include custom posting descriptions in your GL Control Code for Inventory, COS, and WIP.

I’ve attached our solution which was created using an old EUG post but modified into current nomenclature (proven functional on version 10.2.500 and 10.2.700).  It will allow your finance team to trace any GL entry to its source using the GLJrnDtls Table Description column.  Simply go to the module and import the new revision.

This setup has a hard stop where it will push the Capture COS/WIP Activity JE to Review Journal before posting to the Ledger.
So you have to go there are and manually confirm the Entry for it to post.

This is a way for finance to trace the variances dollars from the GL to their source.
I do recommend using the JobOper, JobMtl, and JobAsmbl tables for more real time analytics.
Since they don’t require Capture/COS & WIP Activity to be run and posted.


This type of cost analysis is my forte, so please feel free to email me directly.
We have real time reports for all manufacturing variances.

akosters@anchorpartners.com

-Anthony
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A
Userlevel 1

Thanks for the tip @pjackson .  I am heading to Insights this year, so I will have to review the available sessions or possibly find someone to talk with 1:1 on this issue.

I’ll be around the EUG booth at Insights if you want to ask for me there we can talk 1:1.

-Anthony

G
Userlevel 3

Thanks @akosters for the information on how you are handling these deficiencies within Epicor for traceability of manufacturing variance.  I will make a point to stop by the EUG booth and hopefully we can meet for a quick discussion.

 

Glenn

Glenn Owers Sr. Business Analyst Safran Electronics & Defense Canada Peterborough, ON Canada Version: 2021.2..23

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