Cost variances

What are cost variances?

Differences between the expected cost of a product versus the actual cost recorded at the time of sale or posting are referred to as cost variances. 

Product cost variances are calculated by the system when there are:

1. Rounding differences in cost calculations.
2. Cost of goods sold (COGS) differences - products sold before the purchase order is receipted or before landed costs (import costings) are posted.

Rounding differences in cost calculations

The number of decimal places for product unit costs and selling prices is set to 3 by default. This can create small discrepancies due to rounding differences and are treated as cost variances.

COGS differences

If a product is sold before its purchase order has been receipted or before landed costs (e.g. freight/shipping) are posted, Qblue uses the last buy price of the product. When the actual costs are confirmed, the difference is posted as a cost variance.

Here's how the process works: 

1. You sell a product before receipting its purchase order (PO) and before posting the landed costs.
2. The inventory level of the product in Qblue is now -1.
3. Qblue recognises this negative inventory level; when you view the invoice for this sale, you'll see that the product has a gross margin (GM) of 100% because the cost of goods sold (COGS) is $0. 
4. Once the PO is receipted and (for foreign currency POs) the landed costs are posted, Qblue creates a cost variance journal because it's recognised that the product was sold into negative inventory. 
5. This journal:
   • Re-balances the $0 valued COGS in Xero.
   • Is coded to the Cost Variance Calculations GL mapping in Xero.