When evaluating production performance, the Job Cost Variance report is often used to review and evaluate job costs. For Stock Jobs, there can be a huge disconnect form what Production sees as variances and what Accounting sees as variances. Three additional variances need to be added the Job Cost Variance report as a bridge between the Production Variances and Accounting Variance.
What are the Three additional variances needed for the Job Cost Variance Report?
Variance # 1 – Average Cost Variance
This is the difference between the current average cost on the Item Master and the Job Estimated Cost at the time of creating the Job.
This is calculated by taking the Item Master average cost minus the Unit COGS from the Job Order Cost Summary times the Job Make Quantity.
Reasons this happens:
Costs have change from the last time this part was run.
Substantial Setup Cost and the Job Make Qty differs from the normal process Qty.
Incorrect data changes have been made.
Variance # 2 – Finish Goods Variance
This is the value difference between the Job Make Qty and the Qty Moved to Inventory.
This is calculated by taking the Job Make Qty minus the Material Receipt Transactions (Inventory Movement report) times the Unit COGS from the Job Order Cost Summary.
Reasons this happens:
Excessive scrapped occurred for this Job that reduced the amount of Finish Product.
The Job Make Qty was only an approximation and the never got adjusted afterwards.
Incorrect reporting of moves to Finish Goods.
Variance # 3 – General Ledger Variance
This is the value that will be GL Variance Account for this Job after Job Close.
This is calculated by adding up the two variances from above and adding the Actual cost for the Job minus the Job Estimated from the Job Cost Variance report.
Reasons this happens:
Job Actual Cost can vary from the Job Estimated Costs.
Reporting of Labor and Materials was inaccurate.
How should this additional variances be used?
Run the Customized Job Order Cost Variance to Excel.
Sort by the first two variances for large positive or negative numbers.
Make changes to the reported data if needed or else note the difference and make changes so that these variances should obstruct the understanding of the true Job Variance.
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