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Production order Settlement

pratik_ghonmode2
Explorer
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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

Accepted Solutions (1)

Accepted Solutions (1)

Former Member
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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

pratik_ghonmode2
Explorer
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Thanks  Srinivas Salpala for clearing my confusion...

pratik_ghonmode2
Explorer
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Hi Srinivas,

Could you tell me What is Target , Planned & Actual cost with Examples???

And in above conversation you mentioned one term that I couldn't understood i.e. Control cost
what it means???

Former Member
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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

pratik_ghonmode2
Explorer
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Thanks Srinivas, appreciate a lot.

Answers (0)