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How to troubleshoot Production Cost Variances

Updated: Jul 19

D365 F&SC Tip of the Day: In Microsoft D365 Finance and Supply Chain (D365 F&SC), do you have Production Cost Variances? Do you know why? To see where to start troubleshooting, see below.

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What causes a Production Cost Variance?

Production variances are calculated after you End a production order for a standard cost item. The variances reflect a comparison between the reported production activities and the calculation of standard costs for the production item. The variances do not reflect a comparison to the production order's estimated costs.

The production activities that are reported include the consumption of material and routing operations, together with the associated indirect costs, and the quantity that is reported as finished. The following four types of variances are calculated:

· Lot size variance

· Production quantity variance

· Production price variance

· Production substitution variance

The following diagram identifies the four variances that account for the difference between a production order's actual costs and the calculated costs within the item's cost record when the production order is ended.

Troubleshooting Production Cost Variances

When you End a Production Order and you get variances that you’re not anticipating, the first thing to check are the cost Calculations compared the active standard costs.

To do the comparison, go to Cost Management > Predetermined cost policies setup > Costing Versions > click on the desired costing version > click Calculation.

Select the manufacturing site and set Update/insert calculated prices = Overwrite > click OK.

Note: If you don’t want to run the calculation for all the items, select the desired records on the Records to include) tab.

After the cost calculation is complete, click on Price > Item Price.

The calculated costs will be on the Pending Prices tab.

Export the Pending Costs and Active Costs into Excel and compare the costs. You will then be able to see which costs are incorrect.

Note: To limit the list of costs to the ones you want, you will want to filter on SITE that you used when running the Calculation.

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