Variance in COPA based on Quantity sold
I have a question in COPA. When I settle the production order, entire variance goes to COPA irrespective of quantity sold. However according to me it is not correct. Below is the example:
Produced 100 Pcs with standard cost of 10000 INR (Actual Cost 12000 INR)
Variance - 2000 INR
Qty Sold - 75 Pcs
Variance as per me should be 2000/100*75 = 1500 INR
However in COPA I am getting 2000 INR. since I am subtracting my variance with the sales, it seems to be undervaluing my profit as my qty sold is 75 pcs, however variance is for 100 Pcs.
Is there any configuration required to correct the same.
Thanks in advance for your help !!
If you are not using Material ledger then this is not possible.
1. In standard cost estimate, the difference between the Actual cost and the Target cost( Estimated cost) is the variance.
2. This variance is settled to Price difference account at the time of settlement of Production orders.
3. Hence the Variance is not updated in the inventory, so what ever was the Standard cost( Estimated cost ), our COGS will be updated with the same price at the time of sales. ( delivery).
4. Thus COPA gets the entire variance which was settled to Price difference account at the time of settlement, so it will not have any update on the No. product sold or which are still in inventory. Hence the variance will be on the total Quantity produced irrespective of the No of Quantity sold.
If Material Ledger is Activated:
1.At the time of settlement the Variance will be calculated and updated directly to the inventory.
i.e., If the material estimated cost for 10$ at the month beginning and the actual cost was 15$, this 5$ is updated directly to the material value. the material value gets increased by 5$ once the PO is settled.
Note: This 5$ will only be updated for the number of quantity which are in the our inventory presently and the open deliveries which are not billed, an additional Material ledger document is updated to all the open Sales order for which delivery has been done but Billing is yet to be done.
Once this happens, we will have a correct Revenue recognition as our COGS is getting increased by 5$ per material.
Hope this above explanation clears your doubt.
M S Lokesh