Manufacturing Order Variances

1. Manufacturing Order Variances Understanding the Variances Created during MO Close and Purge

2. Overview • MO variances are created during the MO Close & Purge • MO Close and Purge is the equivalent of a period close for WIP • XA creates multiple variances for each MO • These variances can be booked to a single account or to multiple accounts depending on the rules

3. ‘T’ Accounts -Material Uncontrolled Floorstock Inventory WIP IX IP IU IP IU IX

4. ‘T’ Accounts - Labor Uncontrolled Floorstock Inventory WIP IX IP IU IP IU IX LSSA LRSA Earned Labor LSSA LRSA

5. ‘T’ Accounts - Overhead Uncontrolled Floorstock Inventory WIP IX IP IU IP IU IX LSSA LRSA LOHD Overhead Absorption Earned Labor LOHD LSSA LRSA

6. ‘T’ Accounts – Material Receipt Uncontrolled Floorstock Inventory WIP IX IP IU IP IU IX LSSA LRSA LOHD RM RM Overhead Absorption Earned Labor LOHD LSSA LRSA

7. Variances • VMCS – Material Cost Variance • VMUS – Material Usage Variance • VSCO – Setup Labor Cost Variance • VSUS – Setup Labor Efficiency Variance • VRCO – Run Labor Cost Variance • VRUS – Run Labor Efficiency Variance • VOCO – Overhead Cost Variance • VOUS – Overhead Efficiency Variance

8. Variances • VEAC – Miscellaneous Charge Cost Variance • VCLO – Order Closeout • Total Order variance is reported on the ‘Order Closeout Accounting Detail’ report • Order Closeout Report can be re-run from the MO History Reports • Detail variances are reported on the ‘Order Closeout Variance Report’ at time of Close and Purge • Close and Purge is the only time that ‘Order Closeout Variance Report’ is created, it cannot be re-run at a later date

9. Order Detail Accounting Format Order Summary Material Detail Operation Detail

10. Order Detail Accounting Format Order Totals Formula for calculating variance is: Setup (lbr) + (Run) Labor + Overhead + Mtl & Pur + Miscellaneous = Total Actual Total Actual – Receipt (RM) = Difference (Variance)

11. “T” Account - WIP Setup Labor – 27.31 Run Labor – 221.05 Overhead – 918.94 Material & Purchase – 135.26 Miscellaneous – 0.00 Total ‘Actual’ – 1,302.56 Receipt (RM) – 703.14 Variance (to zero out the value in WIP) – 599.42

12. GLI History • XA has always had the option to create the ‘Order Detail Accounting Format’ report for total variance • When GL Interfaces were created, individual variances were required • ‘Order Closeout Variance Analysis’ report was created to detail the individual variances • Report shows each item and operation to calculate variances • Variances are summarized on last page • Sum of the variances must equal the variance on the ‘Order Closeout Accounting Detail’ report

13. VMCS VSCO VRCO VOCO VEAC

14. VMUS VSUS VRUS VOUS

15. Material Variances • VMCS – Material Cost Variance • When the MO is created, the bill of material is copied to the MO • The standard cost of each component part is copied to the MO • If the cost of the component is changed between the time that the MO is created and the time of the IP transaction, a VMCS variance will be created

16. Material Variances • VMUS – Material Usage Variance • When the bill of material is copied to the MO, the extended quantity of each component is copied as the ‘standard’ quantity • If an Unplanned Issue (IU) transaction is entered, and the ‘Standard Quantity’ is entered, it will be used to calculate Usage variance • Any difference between ‘standard’ quantity and quantity issued will be part of the VMUS

17. Material Variances Labor/Overhead Variances

18. VMUS VMCS

19. ‘T’ Accounts – Material Variances Uncontrolled Floorstock Inventory WIP IX IP IU IP IU IX LSSA LRSA LOHD RM VMCS= .01 VMUS= 12.32 RM Overhead Absorption Earned Labor LOHD LSSA LRSA Variances VMCS VMUS

20. Labor Variances • VSCO/VRCO – Setup and Run Cost Variances • PC&C tailoring determines if labor will be valued at Production Facility standard or employee pay rate (requires XA Payroll) • If tailored for Payroll, difference between Facility standard and employee pay rate will be reported in the ‘CO’ variances • If Facility Standard Cost is changed from the time that the MO is created, difference will be ‘CO’ variance • PC&C tailoring question determines if MO standard will be changed when Facility standard is changed

21. Labor Variances • VSUS/VRUS – Setup and Run Labor Efficiency Variances • If the actual time charged to the job is different from the standard, difference will be charged to the ‘US’ variance • If a Time Basis Code was used in the operation (Run Labor), XA will calculate the hours per piece • Actual Run Hours will be divided by the quantity complete plus quantity scrapped to determine per piece actual time

22. VSUS VRUS VSCO VRCO

23. ‘T’ Accounts – Labor Variances Uncontrolled Floorstock Inventory WIP IX IP IU IP IU IX LSSA LRSA LOHD VRCO = 19.22 RM VMCS= .01 VMUS= 12.32 VSCO= 27.31 VRUS=105.44 RM Overhead Absorption Earned Labor LOHD LSSA LRSA Material Variances Labor Variances VMCS VMUS VSCO VRUS VRCO

24. Overhead Variances • VOCO – Overhead Cost Variance • If the overhead rate/percent changes from the time that the MO was created to the time that labor was charged to the operations, difference will be reported in the VOCO transactions • PC&C tailoring question determines if facility rates in the MO are updated when the facility costs are changed • Machine variances (if machine time is entered in the routing) will be included in the Overhead Variances

25. Overhead Variances • VOUS – Overhead Efficiency Variances • Setup and Run Labor Efficiency variances will be extended by the overhead rate/percent (depending on the Overhead Code of the facility) • If Machine times are entered in the routing, Machine cost variances will be included with the overhead variances

26. VOUS VOCO

27. ‘T’ Accounts – Overhead Variances Uncontrolled Floorstock Inventory WIP IX IP IU IP IU IX LSSA LRSA LOHD VRCO = 29.22 RM VMCS= .01 VMUS= 12.32 VSCO= 27.31 VRUS=105.44 VOCO= 29.91 VOUS=390.15 RM Overhead Absorption Earned Labor LOHD LSSA LRSA Material Variances Labor Variances Overhead Variances VOCO VOUS VMCS VMUS VSCO VRUS VRCO

28. Order Closeout Variance • Cost, Efficiency and Usage Variances are totaled • Sum of these variances are subtracted from the total variance as calculated by the ‘Order Closeout Accounting Detail’ report • Difference is the VCLO – Order Close Variance

29. Calculation VCLO

30. ‘T’ Accounts – Overhead Variances Uncontrolled Floorstock Inventory WIP IX IP IU IP IU IX LSSA LRSA LOHD VRCO = 29.22 RM VMCS= .01 VMUS= 12.32 VSCO= 27.31 VRUS=105.44 VOCO= 29.91 VOUS=390.15 VCLO= 53.50 RM Overhead Absorption Earned Labor LOHD LSSA LRSA Material Variances Labor Variances Overhead Variances VOCO VOUS VMCS VMUS VCLO VSCO VRUS VRCO

31. Potential Reasons for VCLO • VCLO records ‘unexplainable’ (by XA) variances • Incorrect/missing cost for item ordered (i.e. cost on RM is wrong) • Unplanned Issue (IU) transactions where ‘Standard Quantity’ is entered • Operation added to MO • Scrap

32. Scrap • Scrap costs can be collected via • The SM transaction in Inventory Management • The SCRP transaction in PC&C • SM transaction is valued at the finished item’s standard cost • SCRP transaction is valued at the pro-rated cost of scrap at the operation where scrap was reported • Cost of Scrap is included in MO Closeout Total Cost so it needs to be booked to the variance account to remove scrap from variance

33. Cost Total Sheet Pro-rated cost of Scrap (SCRP)

34. ‘T’ Accounts – Overhead Variances Uncontrolled Floorstock Inventory WIP IX IP IU IP IU IX LSSA LRSA LOHD VRCO = 29.22 RM VMCS= .01 VMUS= 12.32 VSCO= 27.31 VRUS=105.44 VOCO= 29.91 VOUS=390.15 VCLO= 53.50 RM Overhead Absorption Earned Labor LOHD LSSA LRSA Material Variances Labor Variances Overhead Variances Scrap VOCO VOUS VMCS VMUS VCLO SCRP SCRP VSCO VRUS VRCO

35. Rules • Individual rules for each variance type do not have to be created • GL rules for transactions with asterisks in them are ‘wildcard’ transactions and can be used to create a single rule for multiple transactions • For example, all MO variances could be booked to the same account with a rule for ‘V***’

36. Variance Transactions

37. Variance Transactions

38. Summary • MO Variances provide a diagnostic tool to review the accuracy of the bill of material, material movement transactions and routing standard times • By analyzing the orders with the largest variances (favorable or unfavorable) and correcting the condition that caused them will make a company’s data/information much stronger!