Understanding GL Impact Small Variances in Standard Costing

When you use Standard Costing in NetSuite, you might notice small variances in the General Ledger (GL) for inventory transactions. These variances usually happen because of rounding differences in unit cost calculations, when standard costs use high precision but transactions post at two-decimal currency precision. This is expected system behavior and doesn't mean there's a calculation error. This topic explains why these variances happen and how NetSuite calculates standard cost and unit cost per transaction.

Rounding and Variances in Standard Costing

NetSuite stores standard costs with high precision (up to eight decimal places), but rounds transaction amounts to your account’s currency precision (usually two decimals). When you multiply quantities and round them or post multiple transactions, small rounding variances can add up. This is expected and helps keep inventory values consistent across your account.

Standard Cost Versus Unit Cost

This section explains the difference between the calculations for Standard Cost and Unit Cost.

Standard Cost of a Transaction

When you receive or process inventory, NetSuite uses this formula:

Standard Cost of a Transaction = (New Total Item Quantity × Standard Unit Cost) rounded to currency precision – Current Item Value

  • Standard Unit Cost – The high-precision cost per unit, as defined in your standard cost setup.

  • Currency Precision – The number of decimal places used for your account’s currency (usually two).

  • Current Item Value – The current inventory value before the transaction.

Unit Cost per Transaction

For reporting and transactions, NetSuite calculates the unit cost per transaction as:

Unit Cost per Transaction = Current On-Hand Value / Transaction Quantity

  • Current On-Hand Value – The total inventory value at the time of the transaction, rounded to currency precision.

  • Transaction Quantity – The number of units in the transaction.

Example of Small Variances in Standard Cost of a Transaction (Inventory Item)

Let's say you have an inventory item with a Standard Unit Cost of 33.08939731.

 

Single Receipt of 10 Units

Ten Receipts of One Unit Each

Calculation

10 × 33.08939731 = 330.8939731

Rounded to 2 decimals = 330.89

Each: 1 × 33.08939731 = 33.08939731

Rounded to 2 decimals = 33.09

33.09 × 10 = 330.90

Total (with small variance)

330.89

330.90

Variance: 330.90 (ten single receipts) – 330.89 (one receipt of ten) = 0.01

This 0.01 difference happens because each transaction is rounded to currency precision.

Note:

NetSuite’s approach ensures that if two locations have the same quantity and standard cost, they'll have the same inventory value, even if small rounding variances appear in individual transactions.

Example of Small Variances in Unit Cost per Transaction (Assembly Item)

Let's say you have an assembly item made of these components. Note that the unit cost is from the Inventory Revaluation, which assumes the assembly item's quantity of one.

Item ID of Standard Cost Component

Unit Cost

11234

0.931

11235

1.862

Total Unit Cost (sum of the Unit Costs)

0.931 + 1.862 = 2.793

NetSuite calculates the Current On-Hand Value as:

Current On-Hand Value = Current On-Hand Quantity × Standard Cost of the Component (from the table above), rounded to two decimal places

Here's where the small variances happen in different quantities:

Current On-Hand Quantity

One

Five

Total cost for item ID 11234

1 × 0.931 = 0.93

5 × 0.931 = 4.66

Total Cost for item ID 11234

1 × 1.862 = 1.86

5 × 1.862 = 9.31

Total cost of components

(also called "Current Item Value," which refers to the current item value before the transaction)

0.93 + 1.86 = 2.79

4.66 + 9.31 = 13.97

Unit Cost per Transaction

(Current Item Value / Transaction Quantity)

2.79 / 1 = 2.79

13.97 / 5 = 2.794

Therefore, different sources may result in small variances in the calculation for Total Unit Cost:

Source

Total Unit Cost

Inventory Revaluation

2.793

Transaction with Current On-Hand Quantity = 1

2.79

Transaction with Current On-Hand Quantity = 5

2.794

Handling Small Variances

When you see these small variances, you don’t need to take any action. It's how the system handles rounding and doesn't indicate a problem. If you need to reconcile variances, review the transaction history and rounding at each step.

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