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Overview of Manufacturing Variance - Can anyone help??

  • 9 November 2023
  • 6 replies
  • 309 views
G
Userlevel 3

We have found a number of manufacturing jobs from 2021 & 2022, which have not been closed.  I’ve analyzed the data and a large number of the jobs have a variance between the Estimated time and Actual time spent on the job.

My question is:

The labour rate in 2021 was $23.35 per hour for each employee.  The labour rate in 2023 is $67.66 per hour for each employee.  When the job is Closed and the manufacturing variance is calculated, what are the comparisons that Epicor does to determine the variance?  Does Epicor compare the 2021 labour rate to the current labour rate on the resource group or employee record and calculate the variance dollars based on the delta between the rates, or does Epicor continue to use the 2021 rate and compare to the amount of labour on the Part Cost record to determine the variance? 

Note, we calculate our Standard Cost in January of each year, so the labour amount on the Part Cost record today, will reflect the current year standard cost, which would be built based on the 2023 labour rate.

Thanks to anyone who may be able to shed some light on this question.

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Best answer by mthompson 9 November 2023, 16:55

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

6 replies

M

My experience is that when a job is run, all of the costs are put into WIP at the current labor, burden and material rates.  When a job is received into inventory, the parts are put into inventory and taken out of WIP at the current std cost rates.  The difference between what was put into WIP when the work was done and what was taken out of WIP when the job was received is what is put into variance.  So - the short answer is if the parts were put into inventory when the rates were lower, the variance will reflect the lower rates.  If the parts were just received today, the variance will reflect the higher rates.

Michelle Thompson Systems Administrator Vektek LLC Emporia KS 620-487-9135
G
Userlevel 3

Thanks Michelle for the insight.

If I understand correctly, if we had a job that started in 2021 for a Production Quantity of 5, and 4 of the items were received to stock in 2021, the variance would be calculated based on 2021 costs for those 4 receipts from manufacturing.

If we worked on the final item of the job in 2022 & 2023, the labour and material costs against the job would be a mixture of the costs in 2022 & 2023, depending on:

  • labour only or
  • labour and material

Therefore the variance would be mixture of costs and would not easily be tied back to the variance amount without investigation as to the amount of labour and material, and when they were added to the job.

I will need to explain this to the management team, so I want to have a clear understanding of what is happening behind the scences.

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

Glenn - yes that is what I have seen with our system.  Finding out exactly what creates the variance is hard for me to get to.  I am actually trying to make a report that shows the ins and outs to WIP to have a variance report before the job is finished.  I have not been able to complete the report yet due to the complexity.

 

There is a production detail report that you can print from job tracker that will show you the ins to WIP.  The report is not in the easiest to read format but does help figure out the details.

Michelle Thompson Systems Administrator Vektek LLC Emporia KS 620-487-9135
J

Please submit an Epicor Idea to have a report like this automatically created!! It is very needed. If Epicor is already doing all the calculations behind the scenes, why can’t it spit out a report.

S

Usually when a Part costing method is Standard, the system captures standard cost at the time of MFG-CUS , transaction, instead of capturing the actual cost from the job, so the cost transferred to Cost of Sales from WIP comprises of Standard cost that usually do not tie to the Actual cost of Manufacturing  and that difference creates MFG-VAR type of transaction. I would say try Cost roll Up, that will update the Standard cost based on the actual cost. 

 

M
Userlevel 2

@jkuehl You might make a dashboard or SSRS report that shows for a period of time (3 month history for example) all the MFG-CUS or MFG-STK jobs that were received with other than the same cost.  You could use a subquery or summary table that gives average cost, then compare that with the transaction cost, and if they differ by more than a tolerance amount, include in the dashboard.  For most companies, it would be an exception to have multiple transactions per job like this, but even when they happen, the transaction cost should be the same as average per job, unless they were received across a boundary of a standard cost valuation.  But you need to make sure you’re using fields that are based on standard cost, not actual.

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