Cost Variance analysis is control system that is developed by organizations to detect and correct variance from expected level in Inventory costs. Variance analysis is usually associated with derived difference between actual cost and the standard cost defined by organization for good output. There can be multiple factors contributing to form these variances like, Difference in Material costs can be due to material price variance and material usage variance. Similarly the difference between labor cost and standard labor cost can be due to rate variance and efficiency variance.
Variance analysis helps management to understand the present cost and then to control the future cost of material, labor and overheads and also prepare pricing strategies accordingly.
With the help of following configuration you can track cost variance in Sage 300 ERP.
1. Configuration of Cost Variance account in Category
2. Mapping of Standard cost Account set and Category for items for which you want to configure standard costing method.
3. Fixing of standard cost to Inventory items
Inventory control >> IC Items and price list >> Location details.
Following are the example of Journal entry posted by Accpac ERP for Cost Analysis.
In above case the standard cost defined by company for respective product is $ 85/-, but due to drop in demand and excess supply in market the same material was purchased by company at $ 80/-.
In this scenario following are the Journal entry created by Accpac on posting of PO Receipt entry.
New Stuff: Setting up Price Inclusive of Taxes in Sage 300 ERP
The same material sold by company with price $ 90/-. Following are the Journal entry created by Accpac on Posting of OE Shipment entry.
Now since the standard cost defined for this item is 85 but actual cost incurred is 80 the variance of 5 needs to be adjusted. Here is how Sage 300 takes this variance to balance the debits and credits on both sides of entry.
Cost variance analysis is vital for controlling cost and identifies ways for improving efficiency and profitability of organization.
Over a period of time this cost variance records can serve to analyse the trends of material cost and landed cost variations and factors that contribute to it to plan product pricing, and positioning strategies.
Also read:
1. Adjustment Entry in Inventory Control
2. How to handle Inventory Receipt in Sage 300 ERP?
3. Standard cost functionality in Sage 300 ERP
4. Defining Specific Location for an Inventory Item in Sage 300 ERP
5. Different Costing methods in Sage 300 ERP