The standard costing system posts all transactions that affect the value of inventory to the GL inventory distribution journals. All transactions are processed using standard costs that have been established with variances being posted to a series of variance account numbers.
Before processing any transactions in the manufacturing modules you must set up the GL account numbers to use for posting to the inventory distribution journals. These account numbers can be found in the Product Codes, Departments, Purchasing Parameters, and Distribution Accounts forms.
The following list details the accounts you need to set up.
WIP Material
WIP Labor
WIP Fixed Overhead
WIP Variable Overhead
WIP Outside
Inventory Adjustment
Material Fixed Overhead Applied
Material Variable Overhead Applied
NOTE: The Material Fixed Overhead Applied and the Material Variable Overhead Applied accounts are required only when basing overhead on job material issues.
Purchase Cost
Material Usage
Routing
Labor Rate
Labor Usage
Labor Fixed Overhead Usage
Labor Variable Overhead Usage
Material Fixed Overhead Usage
Material Variable Overhead Usage
Machine Fixed Overhead Usage
Machine Variable Overhead Usage
NOTE: The Material Fixed Overhead Usage and the Material Variable Overhead Usage accounts are required only when basing overhead on job material issues.
Vouchers Payable
Direct Labor Applied Account
Fixed Overhead Applied Account
Variable Overhead Applied Account
NOTE: The Fixed Overhead Applied and the Variable Overhead Applied accounts are required only when basing overhead on job labor.
Although these rates default from this location, they are also maintainable at the Current Operations, Job Operations, and Estimate Operations forms.
Fixed Machine Overhead Applied Account
Variable Machine Overhead Applied Account
Although these rates default from this location, they are also maintainable at the Current Operations, Job Operations, and Estimate Operations forms.
Inventory
Inventory Labor
Inventory Fixed Overhead
Inventory Variable Overhead
Inventory Outside
COGS Material
COGS Fixed Overhead
COGS Variable Overhead
COGS Outside
In-Transit Material
In-Transit Labor
In-Transit Fixed Overhead
In-Transit Variable Overhead
In-Transit Outside
NOTE: You are allowed to delete any distribution account record, including the default distribution account with a blank warehouse and blank product code.
The inventory account number used for journal transactions does not come directly from the Distribution Accounts form. Rather, the inventory accounts used comes from the stock location being accessed when the transaction is performed.
When a stock location is added for an item in the Inventory module, an inventory account is entered for the location, and an account number for each cost detail component is added.
The default for these fields are the inventory account numbers in the Distribution Accounts file to which the item belongs.
To locate the inventory account numbers, the system searches, in the following order, for:
The system does not post to the G/L inventory distribution journals if any of the account numbers it is attempting to use are not set up.
Outlined below is every transaction that is posted to the inventory distribution journals when standard costing is being used.
The following transactions are posted to the inventory distribution journal named PO Dist.
| Debit | Credit | |
|---|---|---|
| Inventory | xxxx | |
| Vouchers Payable | xxxx | |
| Purchase Variance | xxxx or | xxxx |
NOTE: Since this transaction is for a purchased item, only inventory material cost details component is posted.
The amount that inventory is debited is the quantity received multiplied by the item's standard unit cost:
AID = QR * ISUC
where:
AID = Amount that Inventory is Debited
QR = Quantity Received
ISUC = Item's Standard Unit Cost
Vouchers Payable is credited with quantity received multiplied by the purchase order line item unit cost. If there is a difference between the item's standard unit cost and the purchase order unit cost, the purchase cost variance account is either debited or credited with the difference, which balances the transaction.
If (ISUC - POUC) >> 0, then PCVA = DD or CD
where:
ISUC = Item's Standard Unit Cost
POUC = Purchase Order Line Item Unit Cost
PCVA = Purchase Cost Variance Amount
DD = Debited with the Difference
CD = Credited with the Difference
| Debit | Credit | |
|---|---|---|
| Vouchers Payable | xxxx | |
| Inventory | xxxx | |
| Purchase Variance | xxxx or | xxxx |
NOTE: Since this transaction is for a purchased item, only inventory material cost details component is posted.
The amount that vouchers payable is debited is the quantity returned multiplied by the purchase order unit cost. Inventory is credited with quantity returned multiplied by the item's standard unit cost. If there is a difference between the item's standard unit cost and the purchase order unit cost the purchase cost variance account is either debited or credited with the difference, which balances the transaction.
| Debit | Credit | |
|---|---|---|
| a. If vouchered cost is greater than receipt cost: | ||
| Vouchers Payable | xxxx | |
| Purchase Variance | xxxx | |
| Accounts Payable | xxxx | |
| b. If vouchered cost is less than receipt cost: | ||
| Vouchers Payable | xxxx | |
| Purchase Variance | xxxx | |
| Accounts Payable | xxxx |
The previous transaction is created only if any line items were vouchered at a different cost than the cost at which they were received into inventory. (The cost at which the items were received into inventory is the line item unit cost field at the time of the receipt.)
Variance = (VP - AP)
where:
VP = (qty vouchered * received cost)
AP = (qty vouchered * vouchered cost)
The following transactions are posted to the inventory distribution journal named SF Dist.
| Debit | Credit | |
|---|---|---|
| WIP Material | xxxx | |
| WIP Labor | xxxx | |
| WIP Fixed Overhead | xxxx | |
| WIP Variable Overhead | xxxx | |
| WIP Outside | xxxx | |
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx | |
| Fixed Material Overhead Applied | xxxx | |
| Variable Material Overhead Applied | xxxx |
At the time of issue, the work in process account is debited with the total standard cost of the material being issued plus the fixed and variable material overhead amounts:
WIPA = MC + (FMO * MC) + (VMO * MC)
where:
WIPA = WIP Amount
MC = Material Cost
FMO = Fix Material Overhead
VMO = Variable Material Overhead
MC = SUC * QI
where:
MC = Material Cost
SUC = Standard Unit Cost of Material
QI = Quantity Issued
Inventory is credited with the material cost shown above. The Overhead accounts are credited with the material cost multiplied by the material overhead rates.
| Debit | Credit | |
|---|---|---|
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx | |
| WIP Material | xxxx | |
| WIP Labor | xxxx | |
| WIP Fixed Overhead | xxxx | |
| WIP Variable Overhead | xxxx | |
| WIP Outside | xxxx |
The amount used is the quantity withdrawn multiplied by the item's standard unit cost.
| Debit | Credit | |
|---|---|---|
| WIP Material | xxxx | |
| WIP Labor | xxxx | |
| WIP Fixed Overhead | xxxx | |
| WIP Variable Overhead | xxxx | |
| WIP Outside | xxxx | |
| Direct Labor Applied | xxxx | |
| Fixed Overhead Applied | xxxx | |
| Variable Overhead Applied | xxxx | |
| Labor Rate Variance | xxxx or | xxxx |
| Labor Usage Variance | xxxx or | xxxx |
| Fixed Overhead Usage Variance | xxxx or | xxxx |
| Variable Overhead Usage Variance | xxxx or | xxxx |
Work in process (WIP) is debited (increased) by what the labor and overhead should be for the transaction entered based on the standard run and setup times in the Job Operations record and the standard setup and run rates in the Work Centers form. The calculation varies depending on the type of job transaction being processed.
WIP amount for (S)etup transaction =
[(SSH * WCSSR) * EFFICIENCY FACTOR]+
[(SSH * DFOR) * EFFICIENCY FACTOR] +
[(SSH * DVOR) * EFFICIENCY FACTOR]
where:
SSH = Standard Setup Hours
WCSSR = Work Center Standard Setup Rate
DFOR = Department Fixed Overhead Rate
DVOR = Department Variable Overhead Rate
WIP amount for (R)un Transaction =
[(AP * SRHU * WCSRR) * EFFICIENCY FACTOR] +
[(AP * SRHU * DFOR) * EFFICIENCY FACTOR] +
[(AP * SRHU * DVOR) * EFFICIENCY FACTOR]
where:
AP = Actual Pieces
SRHU = Standard Run Hours (Labor) per Unit
WCSRR = Work Center Standard Run Rate
DFOR = Department Fixed Overhead Rate
DVOR = Department Variable Overhead Rate
Direct labor applied, fixed overhead applied, and variable overhead applied amounts are based on the actual hours reported for the transaction:
WIP Amount for (C) Machine Transaction =
[(AP * SRHMU * WCFOR) * Efficiency Factor] +
[(AP * SRHMU * WCVOR) * Efficiency Factor]
where:
AP = Actual Pieces
SRHMU = Standard Run Hours (Machine) per Unit
WCFOR = Work Center Fixed Overhead Rate (Machine)
WCVOR = Work Center Variable Overhead Rate (Machine)
FO = (AH * DFOR) or (M * MFOR)
where:
FO = Fixed Overhead
AH = Actual Hours (Labor)
DFOR = Department Fixed Overhead Rate
M = Material
MFOR = Material Fixed Overhead Rate
VO = (AH * DVOR) or (Material * MFOR)
where:
VO = Variable Overhead
AH = Actual Hours (Labor)
DVOR = Department Variable Overhead Rate
M = Material
MFOR = Material Fixed Overhead Rate
An entry is made for labor rate variance if there is any difference between the actual employee manufacturing rate and the work center standard pay rate:
LRV = (MR - SR) * AH
where:
LRV = Labor Rate Variance
SR = Standard Rate
MR = Manufacturing Rate
AH = Actual Hours (Labor)
A labor usage variance, fixed overhead variance, and variable overhead variance are posted if the actual hours are less than (<) or greater than (>) the time it should have taken to complete the pieces that were reported:
LUV = ((((SRHU / EF) * PC) - AH) * SPR)
where:
LUV = Labor Usage Variance
SRHU = Standard Run Hours per Unit
PC = Pieces Complete
AH = Actual Hours (Labor)
SPR = Standard Pay Rate
EF = Efficiency Factor (100/ER)
ER = Efficiency Rate
WCSSR = Work Center Standard Setup Rate
SET-UP: LUV = ((SSHU - AH) * WCSSR) / ER
FOUV = (((SRHU / EF) * PC) - AH) * DFOR)
where:
FOUV = Fixed Overhead Usage Variance
SRHU = Standard Run Hours per Unit
PC = Pieces Complete
AH = Actual Hours (Labor)
DFOR = Department Fixed Overhead Rate
SSHU = Standard Setup Hours per unit
EF = Efficiency Factor (100/ER)
ER = Efficiency Rate
SET-UP: FOUV= ((SSHU - AH) * DFOR) / ER
VOUV = (((SRHU / ER)* PC) - AH) * DVOHR)
where:
VOUV = Variable Overhead Usage Variance
SRHU = Standard Run Hours per Unit
PC = Pieces Complete
AH = Actual Hours (Labor)
DVOHR = Department Variable Overhead Rate
SSHU = Standard Setup Hours per Unit
ER = Efficiency Rate
SET-UP: ((SSHU) - AH) * DVOHR) / ER
FMOUV = (((SRHU / ER) * PC) - AH)) * WCFOR
where:
FMOUV = Fixed Machine Overhead Usage Variance
SRHU = Standard Run Hours (Machine) Per Unit
PC = Pieces Complete
AH = Actual Hours (Machine)
WCFOR = Work Center Fixed Overhead Rate (Machine)
ER = Efficiency Rate
VMOUV = (((SRHU / ER) * PC)- AH)) * WCVOR
where:
VMOUV = Variable Machine Overhead Usage Variance
WCVOR = Work Center Variable Overhead Rate (Machine)
ER = Efficiency Rate
| Debit | Credit | |
|---|---|---|
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx | |
| WIP Material | xxxx | |
| WIP Labor | xxxx | |
| WIP Fixed Overhead | xxxx | |
| WIP Variable Overhead | xxxx | |
| WIP Outside | xxxx |
Both inventory and WIP are posted with the quantity being put to stock multiplied by the Items form's standard unit cost of the item being moved to inventory.
xxxx = (quantity completed * Items standard unit cost)
If the quantity of any material issued is more or less than the standard quantity required, the following accounts are adjusted:
The material usage variance amount is the difference between the standard quantity required and the actual quantity issued, extended by the standard cost of the material.
The overhead variance amounts are material usage variance extended by the fixed and variable material overhead rates.
If subsequent to this transaction there is any remaining WIP amount (+ or -), the following adjustment is made.
| Debit | Credit | |
|---|---|---|
| a. If remaining WIP amount is greater than (>) 0 then: | ||
| Routing Variance | xxxx | |
| WIP Material | xxxx | |
| WIP Labor | xxxx | |
| WIP Fixed Overhead | xxxx | |
| WIP Variable Overhead | xxxx | |
| WIP Outside | xxxx | |
| b. If remaining WIP amount is less than (<) 0 then: | ||
| WIP Material | xxxx | |
| WIP Labor | xxxx | |
| WIP Fixed Overhead | xxxx | |
| WIP Variable Overhead | xxxx | |
| WIP Outside | xxxx | |
| Routing Variance | xxxx |
This transaction may be necessary since the WIP account is increased with amounts that are based on the standard times and rates that are established for the job. The decrease of the WIP in the job finish transaction is based on the standard cost of the item being manufactured. If the total standards for the job do not match the standard unit cost of the item, this adjustment to WIP needs to be made.
If the job is not closed at the time the job transaction is posted, the above transaction is posted at the time the status of the job is manually changed from (R)eleased to (C)omplete.
The following transactions are posted to the inventory distribution journal named CO Dist.
| Debit | Credit | |
|---|---|---|
| COGS Material | xxxx | |
| COGS Labor | xxxx | |
| COGS Fixed Overhead | xxxx | |
| COGS Variable Overhead | xxxx | |
| COGS Outside | xxxx | |
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx |
This transaction is processed using the quantity shipped and the item's standard unit cost:
xxxx = (quantity shipped * Items form's standard unit cost)
| Debit | Credit | |
|---|---|---|
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx | |
| COGS Material | xxxx | |
| COGS Labor | xxxx | |
| COGS Fixed Overhead | xxxx | |
| COGS Variable Overhead | xxxx | |
| COGS Outside | xxxx |
This transaction is processed using the quantity returned and the item's standard unit cost:
xxxx = (quantity returned * Items form's standard unit cost)
The following transactions (unless otherwise specified) are posted to the inventory distribution journal named IC Dist.
| Debit | Credit | |
|---|---|---|
| a. Increase quantity: | ||
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx | |
| Inventory Adjustment | xxxx | |
| b. Decrease quantity: | ||
| Inventory Adjustment | xxxx | |
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx |
The amount used for an inventory adjustment transaction is the adjustment quantity multiplied by the standard unit cost of the item.
Cycle counting and physical inventory posting create transactions like the transactions depicted previously. Either transaction a or b is created, depending on whether the count quantity is greater than (>) or less than (<) the original quantity.
| Debit | Credit | |
|---|---|---|
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx | |
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx |
This transaction is only posted if the From and To locations specified on the form have different inventory accounts tied to them. The amount used is the move quantity times the standard unit cost.
A transaction is created if you change the inventory account tied to the location. (The example assumes that all cost details accounts are changed.)
| Debit | Credit | |
|---|---|---|
| Inventory (New accounts) | ||
| Inventory Material Cost 1101 | xxxx | |
| Inventory Labor Cost 1102 | xxxx | |
| Inventory Fixed Overhead Cost 1103 | xxxx | |
| Inventory Variable Overhead Cost 1104 | xxxx | |
| Inventory Outside Cost 1105 | xxxx | |
| Inventory (Old accounts) | ||
| Inventory Material Cost 1001 | xxxx | |
| Inventory Labor Cost 1002 | xxxx | |
| Inventory Fixed Overhead Cost 1003 | xxxx | |
| Inventory Variable Overhead Cost 1004 | xxxx | |
| Inventory Outside Cost 1005 | xxxx |
The amount used is the quantity at the location multiplied by the standard unit cost of the item.
| Debit | Credit | |
|---|---|---|
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx | |
| Inventory Adjustment | xxxx |
This transaction is only posted if a quantity is entered for the location at the same time it is added. The amount is the quantity entered multiplied by the item's standard unit cost.
| Debit | Credit | |
|---|---|---|
| a. If the new standard is greater than (>) old standard: | ||
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx | |
| Inventory Adjustment | xxxx | |
| b. If the new standard is less than (<) old standard: | ||
| Inventory Adjustment | xxxx | |
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx |
| Debit | Credit | |
|---|---|---|
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx | |
| Account Entered | xxxx | |
| Purchase Cost | xxxx | xxxx |
The amount used is the quantity entered multiplied by the item's standard unit cost.
The credit account is the GL account number entered by you. The account defaults to the item's Inventory Adjustment account.
All variances are posted to the account found in the Purchase Cost field on the item's Product Codes form.
| Debit | Credit | |
|---|---|---|
| Account Entered | xxxx | |
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx |
The amount used is the quantity entered multiplied by the item's standard unit cost.
The debit account is the GL account number you entered. The account defaults to the item's Inventory Adjustment account.
The following transactions are posted to the inventory distribution journal named SF Dist.
| Debit | Credit | |
|---|---|---|
| WIP Material | xxxx | |
| WIP Labor | xxxx | |
| WIP Fixed Overhead | xxxx | |
| WIP Variable Overhead | xxxx | |
| WIP Outside | xxxx | |
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx | |
| Fixed Material Overhead Applied | xxxx | |
| Variable Material Overhead Applied | xxxx |
At the time of issue, the work in process account is debited and the inventory account is credited with the standard unit cost of the item issued multiplied by the quantity issued plus overhead. At the time of job close, the material quantity variance is calculated, the work in process account debited, and the material usage variance account credited.
| Debit | Credit | |
|---|---|---|
| Material Usage Variance | xxxx | |
| WIP Material | xxxx | |
| WIP Labor | xxxx | |
| WIP Fixed Overhead | xxxx | |
| WIP Variable Overhead | xxxx | |
| WIP Outside | xxxx |
The following transactions are posted to the inventory distribution journal named SF Dist.
| Debit | Credit | |
|---|---|---|
| Inventory Material | xxxx | |
| Inventory Labor | xxxx | |
| Inventory Fixed Overhead | xxxx | |
| Inventory Variable Overhead | xxxx | |
| Inventory Outside | xxxx | |
| WIP Material | xxxx | |
| WIP Labor | xxxx | |
| WIP Fixed Overhead | xxxx | |
| WIP Variable Overhead | xxxx | |
| WIP Outside | xxxx |
Both inventory and WIP are posted with the quantity being put to stock multiplied by the Item Maintenance standard unit cost of the item being moved to inventory.
xxx = (quantity completed * item standard unit cost)
If, subsequent to this transaction, there is any remaining WIP amount (+ or -) the following adjustment is made.
| Debit | Credit | |
|---|---|---|
| a. If remaining WIP amount is greater than (>) 0: | ||
| Other WIP Variance (Routing Variance) | xxxx | |
| WIP Material | xxxx | |
| WIP Labor | xxxx | |
| WIP Fixed Overhead | xxxx | |
| WIP Variable Overhead | xxxx | |
| WIP Outside | xxxx | |
| b. If remaining WIP amount is less than (<) 0: | ||
| WIP Material | xxxx | |
| WIP Labor | xxxx | |
| WIP Fixed Overhead | xxxx | |
| WIP Variable Overhead | xxxx | |
| WIP Outside | xxxx | |
| Other WIP Variance (Routing Variance) | xxxx |