on 12-14-2014 10:41 AM
Hi Experts,
I have little bit confusion over production order settlement (product cost by order scenario)...
when we fully settled production order following accounting entries will be generated,
Cost of goods manufactured a/c Dr
Production Variance a/c Cr
(Correct if I am wrong)
If WIP was Calculated then it will be Reversed here
Work in Process (P&L) Dr
Work in Process (B/S) Cr
(Correct if I am wrong)
If actual is more than planned then what a/c entry???
if actual is less than planned then what a/c entry???
please guide me experts
Thanks in advance
Hi Pratik,
Variance is the difference between the control cost and target cost.
Control cost = Net of total actual cost (total actual cost - WIP)
Target cost = Standard price of material master * Goods received quantity
So, assume there is no WIP in your case.
Case 1: (Where actual cost more than target cost)
Net actual cost = 200000$ and target cost is 150000 (standard price 1000 * 150 qty)
The entry at the time of settlement is
Variance A/c Dr 50000$
CoGM A/c Cr 50000$
Case 2: (Where Target cost is more than the actual cost)
Net actual cost = 120000$ and target cost is 150000 (standard price 1000 * 150 qty)
COGM A/c Dr 30000
Variance A/c Cr 30000
If you have WIP entries, will be reversed while settling the production order.
BR, Srinivas Salpala
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Hi,
Target cost is nothing but = Goods received from production order qty * plan price. It is used for variance calculation.
Plan price = Plan order quantity * plan price
(Plan quantity and target quantity may not be equal. Assume you have a plan order with 100 qty and you have done the GR fro 50 qty. In this case, plan qty is 100 and GR qty is 50)
Actual cost = Actual qty * actual price (after month end only you will get the actual cost). Till then it will consider only plan price.
Control cost = Net Actual cost
Net Actual cost = Total actual cost - WIP
Hope you have understand the concept.
BR, Srinivas Salpala
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