I am having problems understanding how fixed hours is rolling into standard Cost. Currently, the inventory cost is coming out incorrectly.
For Part A, we have a fixed hour in operation of 2 hours. The labor hours would be 2 irrespective of the quantity produced.
When we produce 200 units of Part A, I have a huge variance when we receive Part A to inventory. Our costing method is standard Cost.
The BOM shows 2 fixed hours, the job shows 2 hours as estimated labor hours but when received into inventory, the hour is applied to each unit instead of the lot. If per hour cost is $20 for labor operation, I have a variance of $3,980 when we receive Part A to inventory.
How do you think we can solve this issue? The production quantity can vary in every job.