Overview

During the production process, production orders accumulate actual costs. Once products are received to the warehouse, the system uses standard cost to calculate product cost.

Actual costs can be higher or lower than standard costs. This must be settled by the difference between the debit and credit which is subsequently transferred to inventory or profit and loss statement as a cost of goods sold.

The system automatically performs the settlement procedure. That is, it calculates and posts the difference between the standard and actual material costs. You need to regularly monitor the variance amount and the balance on the reconciliation account responsible for settling production cost variances after the production process. If everything is correct, variances are minimal and the account balance is equal to zero.

As a result of the process, all cost variances are settled.

Settle product cost variances in accounting flowchart

How to settle product cost variances

The system settles product cost variances automatically within the Cost allocation and cost calculation month-end procedure.

See how to Perform profitability analysis.

Paths

How to review cost variances settlements

1. Go to Profitability & cost → Profitability and cost reports and click Enterprise lot list under Inventory cost.

2. Click and the click Company lot list.

2. Click Settings, go to the Fields and sorts tab, add the Cost preliminary expense and Cost deviation expense fields.

3. Click Close and generate.

4. Review and analyze the cost of sales at planned cost and the deviation amount for the period.