FIFO Average Manufactured Item Cost Control

Epicor ERP 10
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We are seeing wild costing variances with the manufactured items coming out of jobs. When assemblies are received from the job to stock and some are shipped, then one or two go back into the job, the cost variances start balooning out of control. Quite a mess. Another issue is issuing parts after the job is finished, all of those costs go straight to variance. Part of job closing is reviewing that parts were issued. Going back and doing that creates a variance because there are no assemblies left to pick up those costs.

What are the process controls that you use to make sure the users don’t break costing in FIFO Average manufactured parts? How about BPMs?

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I am NOT a Finance person… but occasionally I get to play one… as such this is probably simplistic and possible even wrong, so those who know more please chime in!

And if you haven’t already done so, please download the Job Costing Technical Reference Manual from Epicweb.

Hypothetically, there are two cases (we’re ignoring scrap)

  1. Whenever a part is shipped from a job, Epicor calculates the cost of that part, removes that quantity and value from WIP, and puts it in COGS. Any later transaction on the job does NOT affect this value. There is no Cost Method applied during this process.
  2. Whenever a part is received to stock from a job, Epicor calculates the cost of that part, removes that quantity and value from WIP, and puts it in Inventory according to the Cost Method defined on the finished good part number. Any later transaction on the job does NOT affect this value.

When all quantity has been either shipped from the job or received to stock, there is nowhere else a transaction value to to except to variance, regardless of your Cost Method, as there is no quantity remaining.

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Thanks Ernie, that’s what I’m seeing also. If they notice in job closing that something wasn’t issued, they can issue it quick and close the job. That means it goes to variance in FIFO Avg environment. If your assemblies are standard cost it doesn’t necessarily go to variance because the MFG-STK units always deduct the standard cost from the job.

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We’re using only make-to-stock. We have some BPMs that restrict some of the things we had issues with in the past like:

  • restrict who can re-open closed jobs
  • adding inactive parts to BOMs
  • over-issuing materials
  • adding labor to operations that are already complete
  • adding labor entries with labor qty > operation qty
  • job receipt to inventory for qty > job completed qty
  • can’t close job if not all operations are complete and all materials are issued
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They key point is that timing isn’t just critical, it’s essential. If transactions aren’t actually transacted in the proper sequence, bad things happen and they can’t always be completely fixed.

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