Understanding the oracle standard job variances, how it makes them different plays a crucial role in averaging the cost for end item/product
Take TATA company for example, objective is to build jobs on actual costs incurred in the manufacturing processes , WIP configurations create multiple environments against the same objective.
WIP parameters are some of the key configurations in your manufacturing environment.A typical costing setup for the mentioned objective is as below.
By above screen shot, it is clear that organization tends to use actual job resource transactions. However, provides more emphasis to the “Auto Compute Final Completion” checkbox, as this plays a vital role in determining your completion costs.
This option lets the WIP module know that the Final Completion check box will be enabled at the WIP Completions form after completing the final job quantity.
Final Completion checking logic is last. Completion Quantity + Prior Completed Quantity + Scrap Quantity= Job Quantity.
Now, let’s go through the scenarios for “Auto Compute Final Completion” option enabled and disabled and verify how variances are associated with these configurations.
Case 1: Auto Compute Final Completion = ‘Yes’
An item with a single level BOM structure having 2 components has been taken for the sake of discussion. The average cost summary for the end product and the components is displayed in the image below.
Bill Item
End Assembly Current Average Cost
Component’s Current Average Cost
A job is created with the mentioned end assembly for Quantity 5 using standard material and resource requirements updated at the job. During the progress of the WIP job, the subsequent material and resource transactions that are required have been issued and the job has reached the point where Quantity 2 of the job can be completed. Below is the brief summary of the WIP job as well as the WIP value summary up until this point.
WIP value summary for the job as per the applied material and resources towards the job before WIP completion.
As you can see from the summary, there has been some deviation in transactions from the standard material requirements defined at the beginning of the job considering we are about to complete Quantity 2 of the WIP job and the transactions have occurred according to the job quantity. Now, in this situation, since you are trying to do partial WIP completions, your final completion checkbox is not enabled. The costs will be relieved regardless of how you are completing the final quantity or partial quantity as it relates to the standard material requirements at the job level. This also relieves the material costs as per the standard material requirements and the actual resource costs incurred at the job. Below is the Completion Transaction and WIP value summary.
The WIP Value summary explains that the material costs gets relieved as per the material requirements of the job and that there is a remaining net activity. In this situation, if there are schedule changes or you update or cancel the job, these residual costs remain with the job and are relieved to your variance accounts on closure. To prevent this in the future, check the final completion checkbox manually. Understanding this behavior is very important to attaining the appropriate average cost in the end assembly. Therefore, the maintenance of material requirements during the progress of the WIP job and the checking of final completion checkbox at your WIP completions plays a key role in the efficiency of your operations.
However, in the above simulation, if there are no schedule changes and you complete the final job quantity as per the progress of the WIP job then at the last completion quantity the final completion checkbox gets checked automatically, as per the auto compute parameter, and all the residual costs pending until that point will get relieved from the job.A typical WIP value summary for the entire job quantity completed in this environment would resemble the one below.
Case 2: Auto Compute Final Completion = ‘No’
This kind of configuration should be used in environments where business requires a decision at each job completion as to whether or not residual costs incurred against the job (i.e. cost deviations based on material requirements at job) should get relieved. In this environment, business users should know the importance of this behavior as it does not automatically enable the final completion checkbox even at the last completion quantity. A typical WIP value summary for a full completion without the final completion checkbox being enabled as per the example discussed previously is represented below.
In this example, you can see that the additional costs remain with the WIP and lead to variances on closure. Also, if your environment has dynamic material transactions and you do not maintain the material requirements at the job level, then you are prone to huge variances in this environment and your items costs being deviated.
There are other circumstances that lead to variances on a standard job as well. One potential circumstance is if material and resource transactions are happening after your final job quantity has been completed. This scenario exemplifies why understanding the job status of “Complete-No Charges” is important to make sure no such transactions are occurring. Other standard sources of variation include the scrapping of the assemblies without mentioning the scrap account and minor cost deviations during return transactions because of the cost getting changed.
In conclusion, an average cost operation necessities to keep track of cost variances, but some may not track variances and would need to have the cost averaged by the actual transactions in the job.
In either cases, understanding the importance of final completion derived by the auto compute final completion checkbox configuration along with the other sources of variations can help operations to achieve their functional objectives.
Any problems in the environment with standard job variances leads to more activity on item cost maintenance, then a good health check of your WIP configurations and process improvements
