A.    First off, the Variance measures the extended cost of the components on the Bill of Materials for an assembly against the standard cost itself of the same assembly. Now, if the user has NOT included setup cost in the standard cost of the assembly, then they should not use the setup cost in kitting, etc. and the variances will track properly.

BUT, if they do use the Setup Cost in kitting, then they should also use it in calculating the standard cost for the assembly. And both will take into account the standard build quantity (SBQ). And I believe that’s where there is the huge difference with different SBQ. They are using setup quantities in kitting, but didn’t use it to set the standard cost.

Now, additionally, the SBQ is used to account for the difference between a work order that was built with a quantity different than the SBQ. If they set a SBQ at 100, (and use the setup quantities in the kit), and build a work order quantity of 100, then yes, they should end up with zero variance. But if they built less than the SBQ, they will have an unfavorable variance. If they build more than the SBQ, then they will have a favorable variance. These cases represent the difference because the value of the setup parts is different from the standard cost when the work order has a different value than the SBQ, and the cost of the setup is amortized across the quantity in the work order.