Understanding the behavior of variance settlement cost

[former_member216878]

Dear All,

While calculating the variance it has two nature:

1. When target cost is less then Actual cost on order variance is Positive and settlement entry is:

Price diff a/c Dr

To change in stock

2. When target cost is more then Actual cost on order variance is Negative and settlement entry is:

Change in stock a/c DR

To Price difference a/c

I my case variance settle to FI only and I need to understand  the impact of settlement entry in FI. How to do this please guide.

Regards

Nitu

[ajaycwa1981]

Hi Nitu

Assume you incurred 100 Rs for Manufacturing.. Ideally, the inventory must be valued at 100

But assuming that your Std cost is 90, the following Entry is posted during GR

  Stock Dr        90

     COGM Cr   90

This means, you incurred 100 but offset (through COGM) to the extent of 90 only...

The balance 10, if it were to be posted on Stock, the accounting entry would have been same as above i.e. debit to a B/S account and Cr to a P&L account...

Since you cant do this, the Debit is also posted to a P&L account, which is Price Diff a/c.. Hence, the accounting entry during variance is Debit and Credit to P&L Acounts..

The net impact of this posting in P&L is Zero. However, it is still needed to close the loop of the Production Order, so that it can be assigned Status of CLSD

Regards

Ajay M