dynamicsax-fico: Parallel inventory valuation – an alternative approach (Part 4)

[Blog bot]

Источник: https://dynamicsax-fico.com/2017/04/...proach-part-4/
==============

After the purchase and internal standard cost variances have been analyzed, let’s now have a look at the production related standard cost variances and how to deal with them.

Within this fourth part we will have a look at the lot size variance (LSV) first, which arises for example if the good quantity from a production order differs from the calculation quantity that was used for the standard cost calculation of an item. The following graphic illustrates the composition of the finished item that will be used for the subsequent explanations of the production lot size variance.



The graphic above shows a finished good that is made of a raw material that has a standard cost price of $500 setup. In addition, another $500 route related costs – that consist of $490 assembly cost and $10 setup cost – are necessary to produce the item.



As the setup costs are independent from the quantity produced, the total production costs of an item decrease, as the production quantity increases. The next graphic illustrates this relationship for the sample item used.





To illustrate how the lot size variance arises and how to deal with this kind of variance, a production order for 10 pcs of the finished good is processed. The next screen print shows that a total of $9910 production costs arise for the production of the 10 items [$10 setup costs + 10 x ($500 material costs + $490 assembly costs)]. The illustrated lot size variance of $90 results from the fix cost degression effect shown in the previous graphic.



Similar to what has been shown in the previous post, the next accounting-like overview summarizes the production postings recorded (separated by the different production steps).



 The grey highlighted lines offset each other and can thus be ignored for the analysis of the production costs.

For those readers who are not very familiar with ledger postings, the following financial statement overview has been prepared.



The financial statement overview shows a total inventory value of $10000 for the finished product on ledger account 140670. To produce those finished goods, raw materials with a total value of $5000 and $4910 labor costs have been consumed. The remaining difference to the standard cost value of the finished goods is assigned to the lot size variance that is recorded on ledger account 540630.

Further above, a realized cost amount of $9910 has been identified. Against the background of this actual cost amount, it can be concluded that the inventory value of the finished goods is overstated by $90 from an actual costing perspective.

If one of the produced items is sold later on, the inventory value is decreased by $1000 – the standard costs of the item. The financial statements illustrated below exemplifies this situation.



From an actual costing perspective, the decrease in the inventory value from the sale of the produced item is comparatively too high. The same holds for the cost of sales, which are recorded on ledger account 640650.

In order to arrive at an actual cost valuation, the lot size variance (LSV) needs consequently be adjusted and split up in a similar way that has been shown for the purchase price variance before. The next graphic exemplifies the necessary separation of the total lot size variance if one out of the ten produced items is sold.



To conserve space, the setup of the necessary ledger allocation rule is left as an exercise for the reader. If the allocation rule is later on processed, the following financial statements result:



The financial statement overview shows a total inventory value that is $81 lower than before. This reduction takes care of the difference between the actual and the standard cost price [9 pcs x ($1000 – $991)]. As the allocated lot size variance amount is recorded on a separate ledger account, a parallel standard cost and actual cost inventory valuation can be achieved.

Please note that this also applies for the COGS amount of $1000 that has been adjusted through a corresponding adjustment on ledger account 640651 to arrive at an actual cost value of $991.

Within the next post we will take a look at the other production related standard cost variances and how to deal with them from a parallel valuation perspective. Till then.


Filed under: General Ledger, Inventory Tagged: Inventory, lot size variance, parallel, standard costs, valuation

Источник: https://dynamicsax-fico.com/2017/04/...proach-part-4/