1. Product Costing and Manufacturing Accounting Implementation Guide
  2. Example: Purchase Price Variance and Material Burden

Example: Purchase Price Variance and Material Burden

The Item Cost table (F4105) includes this information:

  • Average cost = 14.00

  • Standard cost = 16.00

The Item Cost Component Add-Ons table (F30026) includes:

  • A1 cost = 13.00

  • X1 cost = 3.00

These t-account graphs illustrate the accounting flow for price variance and material burden:

T-account for price variance and material burden

This T-account graph illustrates how material that is issued to the work order relieves the inventory account and posts to the work-in-process (WIP) account with the fully loaded standard cost for the item:

T-account for material inventory and WIP

This t-account graph illustrates that at period end, a manual journal entry closes the PPV to the Cost of Goods Sold account:

T-account for PPV and COGS

AAI table 4337 posts the material overhead. If you have multiple cost extras and you want to post to different accounts for each of them, you must use landed cost.