Production Cost Variance Analysis in Odoo#
Standard costing sets expected production costs. Actual production costs deviate due to material price changes, labor efficiency, and scrap. Variance analysis identifies the gap and its causes - driving corrective action.
Types of Production Variances#
| Variance | Formula | Cause |
|---|---|---|
| Material Price Variance | (Standard Price − Actual Price) × Actual Qty | Purchased at different price than standard |
| Material Usage Variance | (Standard Qty − Actual Qty) × Standard Price | Used more/less material than planned |
| Labor Rate Variance | (Standard Rate − Actual Rate) × Actual Hours | Labor cost per hour differs |
| Labor Efficiency Variance | (Standard Hours − Actual Hours) × Standard Rate | Took more/less time than planned |
| Overhead Absorption Variance | Absorbed OH − Actual OH | Volume different from budget |
Standard Cost Setup in Odoo#
Product → General tab → Cost: $45.00 (standard cost for manufacturing)
The standard cost is the expected fully-loaded production cost:
- Material: $30 (per BOM, at standard prices)
- Direct Labor: $10 (per routing, at standard labor rate)
- Overhead: $5 (allocated at standard rate)
Tracking Actual Costs#
Manufacturing Order → Cost Analysis tab:
After production:
- Expected Cost: $45.00 (from standard)
- Real Cost: $48.50 (actual materials + actual labor + overhead)
- Variance: $3.50 unfavorable (4% over standard)
Break down the variance:
- Material: used 5% more than planned (waste/scrap) = +$2.00
- Labor: 10% slower than planned = +$1.50
Posting Variance Entries#
With standard cost products, Odoo automatically posts:
When actual cost > standard:
- Debit: Production Variance (P&L expense account)
- Credit: Work In Progress
When actual cost < standard:
- Debit: Work In Progress
- Credit: Production Variance (P&L income - favorable variance)
Aggregate Variance Report#
Manufacturing → Reporting → Production Analysis:
- Total variance by product (month/quarter)
- Favorable vs. unfavorable variances
- Variance as % of standard cost
Products consistently showing >5% unfavorable variance: update the standard cost to reflect reality, or investigate and fix the production process.
Root Cause Investigation#
High material usage variance:
- Check scrap rate: is more material being wasted than planned?
- Check BOM accuracy: is the standard quantity in the BOM still accurate?
- Check receiving quality: are incoming materials defective (causing more usage)?
High labor efficiency variance:
- Which work center is slowest vs. plan?
- Is the routing time still accurate? (may need updating after process changes)
- Are there training gaps for operators?