Subcontract: GL Effect
In addition to material issues, labor, and burden, a final source of cost on a work order is subcontract cost, which is the cost that an external supplier charges for processing a manufacturing operation for you.
• The materials are received on a purchase order and the actual cost accrued (credit PO Receipts). Because the PO is marked as Subcontract, the cost is posted to Cost of Production (debit). If the purchase order receipt transaction specifies a valid work order and operation, then this transaction is processed to issue the materials to WIP.
• The actual cost is taken out of the Cost of Production account (credit) and put into WIP (debit) where it belongs.
• Then the actual cost on the PO is compared to the standard (frozen) subcontract cost specified on the work order routing. If there is a difference, it is posted as a Subcontract Rate Variance. The amount is:
(Subcontract PO Unit Rate - Subcontract Frozen WO BOM Unit Cost) * Qty Received
• Upon work order receipt, the total standard cost less overhead is subtracted from WIP and posted to inventory
• Upon Work Order Accounting Close:
• All Material and Subcontract Usage Variances are subtracted from WIP and posted to work order usage variance
• Any cost remaining in WIP is posted to work order Method Change Variance
Subcontract-Related Variances: Summary
Subcontract Rate Variance
On subcontract purchase orders, there are no Purchase Price Variances (PPV). Instead of PPV, QAD Enterprise Applications debits the Subcontract Rate Variance account.
The total amount posted as Subcontract Rate Variance is:
(Subcontract PO Unit Cost - Subcontract Frozen WO BOM Unit Cost) * Qty Received
Where subcontract WO BOM unit rate is the rate entered in Routing Maintenance (14.13.1).
Subcontract Usage Variance
This variance is generated upon Work Order Accounting Close (16.21) and tracks the difference between the quantity invoiced on a subcontract PO and the quantity completed in work in process.
The total amount posted as Subcontract Usage Variance is:
[Qty Received on PO - (Op Qty Complete + Op Qty Reject)] * Subcontract Frozen WO BOM Unit Cost
Any cost remaining in WIP is posted to work order Method Change Variance.
