Flow Production

The previous sections of this key concept have talked about how variances are calculated for manufacturing orders.  In a Just-in-Time environment, flow authorizations are used instead of manufacturing orders to schedule production.  In these environments, variances are calculate for each flow receipt as follows:

·     If actual labor and machine time are recorded, then Inventory Accounting calculates variances for flow receipts by comparing actual labor and overhead costs to the standard accounting labor and overhead cost of the flow receipt.

·     If actual labor and machine time are not recorded, no variances are calculated.

Since no balances are carried from period to period for flow authorizations, there is no need for as-incurred variance processing.  All variances will be reported as "closure" variances.