Standard Costing method and labor entry method

I believe I have a big issue that I’m not sure how to handle. we are using std. costing. I am not convinced our standards are correct. I recently trained all shop employees how to use MES to record labor and discovered that all operations are marked quantity only or backflush. If our standards aren’t right this leads to incorrect job costing. My plan is to change all operations to labor and quantity and get actual costing. compare this to the standard and where there is a variance +/- x percentage we look closer and see if it was due to an issue or if our standards are off. I have little to no experience with std. costing in epicor. I understand the concept but need to have a few questions answered.

  1. if I switch to labor and qty reporting will it be detrimental other than seeing more variances in the general ledger?
  2. Why have we been seeing labor variances in the general ledger when it is quantity only or backflush?

Any suggestions or conversation is also welcome.

1 Like

Good luck! I would absolutely love to do this here.

In answer to question #2 - Could the variances could be the result of scrap?

For example. A job for 5,000 pcs for Part A takes 5 hours. From that job, you get 500 pcs of scrap and 5,000 good parts. So, the total labor would be 5.5 hours when your standard for 5,000 pcs is actually 5 hours.

Just a thought…

  1. You might. Any variance between the WIP-STK, WIP-CUS or WIP-WIP and the standard cost will leave a cost in WIP and at closing will be transferred to MFG-VAR. These are the jobs that need review if they are outside the parameters you
    might use for job reviews. I always used an 80-120 rule. Anything outside those percentages were reviewed.

  2. I would need an example of labor variances in the GL. Are the labor rates the same as the estimated rates? When you use a Qty only or Backflush, the labor is calculated based on the Production Standard and the quantity reported. Look
    at the rates for backflushing and the backflush employee for the problem.