If you are a manufacturing company, you may likely have a number of variances in your cost of sales:

·         Purchase price variances

·         Material usage variances

·         Labor variances

·         Overtime premium variances

·         Overhead variances

With a new year just started, take a close look at these variances so far. 
Or take a look at the variances from last year.

Are the variances pretty small?  Good for you.  You probably have some pretty good standards and did a good job of forecasting for the year you are looking at.

What if that is not the case in some area?  What are those variances telling you?  It may be time to take another look.

·         Has it been a long time since you evaluated your standards? 

·         How long has it been since you did a complete roll-up of your manufacturing costs?

·         Are there certain products or jobs that have been difficult to run and the standards are off?

·         Have you introduced a new product line with very different characteristics or that changes the workflow from what you have?

You may come to the conclusion that your standards need some adjusting, either on some isolated products or across your whole product line.

Another way to look at it is to ask, if your first month or year came in at the volume you expected, what kind of variances would there be?  Hopefully very little. 

However, if your answer is that there might be significant variances in one or all three areas (materials, labor and overhead), that is a sign you have a revision in order.

When variances are large, it muddies the picture.  The variances are passed off as poor standards, when there might really be a sourcing or production issue lying at the heart of part of the variance.

The year is young.  If you missed doing a roll-up to new standards, do it now, so you can have more meaningful numbers to see going this year.