fix: manufacturing variance for standard cost valuation (#56684)

erpnext/setup/doctype/company/company.json

@@ -130,6 +130,7 @@
   "column_break_32",
   "stock_adjustment_account",
   "default_purchase_price_variance_account",
+  "default_manufacturing_variance_account",
   "stock_received_but_not_billed",
   "stock_delivered_but_not_billed",
   "disable_sdbnb_in_sr",
@@ -499,7 +500,18 @@
    "ignore_user_permissions": 1,
    "label": "Default Purchase Price Variance Account",
    "no_copy": 1,
-   "options": "Account"
+   "options": "Account",
+   "show_description_on_click": 1
+  },
+  {
+   "description": "For Standard Cost items: the Manufacture/Repack consumed cost vs standard rate difference is booked here.",
+   "fieldname": "default_manufacturing_variance_account",
+   "fieldtype": "Link",
+   "ignore_user_permissions": 1,
+   "label": "Default Manufacturing Variance Account",
+   "no_copy": 1,
+   "options": "Account",
+   "show_description_on_click": 1
   },
   {
    "fieldname": "column_break_32",
@@ -1014,7 +1026,7 @@
  "image_field": "company_logo",
  "is_tree": 1,
  "links": [],
- "modified": "2026-06-26 10:05:00.000000",
+ "modified": "2026-07-01 11:48:07.853494",
  "modified_by": "Administrator",
  "module": "Setup",
  "name": "Company",

erpnext/setup/doctype/company/company.py

@@ -80,6 +80,7 @@ class Company(NestedSet):
 		default_inventory_account: DF.Link | None
 		default_letter_head: DF.Link | None
 		default_letter_head_report: DF.Link | None
+		default_manufacturing_variance_account: DF.Link | None
 		default_operating_cost_account: DF.Link | None
 		default_payable_account: DF.Link | None
 		default_provisional_account: DF.Link | None

erpnext/stock/doctype/item_default/item_default.json

@@ -35,6 +35,7 @@
   "purchase_expense_account",
   "purchase_expense_contra_account",
   "purchase_price_variance_account",
+  "manufacturing_variance_account",
   "selling_defaults",
   "column_break_sales",
   "vf_selling_cost_center",
@@ -198,6 +199,14 @@
    "options": "Account",
    "show_description_on_click": 1
   },
+  {
+   "description": "For Standard Cost items: the Manufacture/Repack consumed cost vs standard rate difference is booked here. Falls back to the Company's Default Manufacturing Variance Account.",
+   "fieldname": "manufacturing_variance_account",
+   "fieldtype": "Link",
+   "label": "Manufacturing Variance Account",
+   "options": "Account",
+   "show_description_on_click": 1
+  },
   {
    "fieldname": "column_break_purchase",
    "fieldtype": "Column Break"
@@ -365,7 +374,7 @@
  ],
  "istable": 1,
  "links": [],
- "modified": "2026-06-26 10:05:00.000000",
+ "modified": "2026-07-01 11:48:07.853494",
  "modified_by": "Administrator",
  "module": "Stock",
  "name": "Item Default",

erpnext/stock/doctype/item_default/item_default.py

@@ -28,6 +28,7 @@ class ItemDefault(Document):
 		expense_account: DF.Link | None
 		income_account: DF.Link | None
 		inventory_account_currency: DF.Link | None
+		manufacturing_variance_account: DF.Link | None
 		parent: DF.Data
 		parentfield: DF.Data
 		parenttype: DF.Data

erpnext/stock/doctype/item_standard_cost/item_standard_cost.py

@@ -260,6 +260,29 @@ def get_purchase_price_variance_account(item_code, company):
 	return account
 
 
+def get_manufacturing_variance_account(item_code, company):
+	"""Resolve the Manufacturing Variance account for a Standard Cost item: the per-company Item Default
+	override if set, otherwise the Company default. During Manufacture/Repack this account absorbs the
+	difference between the consumed (raw material + additional) cost and the finished good's standard rate."""
+	account = frappe.db.get_value(
+		"Item Default",
+		{"parent": item_code, "company": company},
+		"manufacturing_variance_account",
+	)
+
+	if not account:
+		account = frappe.get_cached_value("Company", company, "default_manufacturing_variance_account")
+
+	if not account:
+		frappe.throw(
+			_(
+				"Please set a Manufacturing Variance Account for Item {0} or a Default Manufacturing Variance Account in Company {1}."
+			).format(get_link_to_form("Item", item_code), frappe.bold(company))
+		)
+
+	return account
+
+
 @frappe.whitelist()
 @frappe.validate_and_sanitize_search_inputs
 def get_standard_cost_items(

erpnext/stock/doctype/item_standard_cost/test_item_standard_cost.py

@@ -58,10 +58,34 @@ def ensure_ppv_account(company):
 	return account
 
 
+def ensure_mfg_variance_account(company):
+	"""Ensure `company` has a Default Manufacturing Variance Account so Manufacture/Repack entries of
+	Standard Cost finished goods can book the consumed-cost-vs-standard difference."""
+	account = frappe.get_cached_value("Company", company, "default_manufacturing_variance_account")
+	if account:
+		return account
+
+	from erpnext.accounts.doctype.account.test_account import create_account
+
+	# Place it under the same group as the company's default expense account.
+	expense_account = frappe.get_cached_value("Company", company, "default_expense_account")
+	parent_account = frappe.db.get_value("Account", expense_account, "parent_account")
+	account = create_account(
+		account_name="Manufacturing Variance",
+		account_type="Expense Account",
+		parent_account=parent_account,
+		company=company,
+		account_currency=frappe.get_cached_value("Company", company, "default_currency"),
+	)
+	frappe.db.set_value("Company", company, "default_manufacturing_variance_account", account)
+	return account
+
+
 class TestItemStandardCost(ERPNextTestSuite):
 	def setUp(self):
 		ensure_ppv_account(TEST_COMPANY)
 		ensure_ppv_account(PI_COMPANY)
+		ensure_mfg_variance_account(PI_COMPANY)
 
 	def test_only_for_standard_cost_items(self):
 		item = make_item(properties={"valuation_method": "FIFO", "is_stock_item": 1})
@@ -246,9 +270,11 @@ class TestItemStandardCost(ERPNextTestSuite):
 		)
 		self.assertRaises(frappe.ValidationError, se.submit)
 
-	def test_manufacturing_variance_books_to_stock_adjustment(self):
+	def test_manufacturing_variance_books_to_variance_account(self):
 		# RM standard 50, FG standard 200. Consuming 5 RM (250) to produce 1 FG (200) leaves a
-		# 50 manufacturing variance, which must land in the company's Stock Adjustment account.
+		# 50 (unfavorable) manufacturing variance, which must land in the company's Manufacturing
+		# Variance account, not the generic Stock Adjustment account.
+		mfg_variance = ensure_mfg_variance_account(PI_COMPANY)
 		rm = create_standard_cost_item()
 		fg = create_standard_cost_item()
 		create_item_standard_cost(rm.name, rate=50, company=PI_COMPANY)
@@ -275,12 +301,94 @@ class TestItemStandardCost(ERPNextTestSuite):
 		self.assertEqual(flt(fg_sle.valuation_rate), 200)
 		self.assertEqual(flt(fg_sle.stock_value_difference), 200)
 
+		def gl_net(account):
+			return flt(
+				frappe.db.sql(
+					"select sum(debit - credit) from `tabGL Entry` where voucher_no=%s and account=%s",
+					(se.name, account),
+				)[0][0]
+			)
+
+		# The 50 variance is reclassified to the Manufacturing Variance account...
+		self.assertEqual(gl_net(mfg_variance), 50)
+		# ...leaving the generic Stock Adjustment account untouched.
 		stock_adj = frappe.get_cached_value("Company", PI_COMPANY, "stock_adjustment_account")
-		net = frappe.db.sql(
+		self.assertEqual(gl_net(stock_adj), 0)
-			"select sum(debit - credit) from `tabGL Entry` where voucher_no=%s and account=%s",
+
-			(se.name, stock_adj),
+	def test_manufacturing_variance_includes_additional_costs(self):
-		)[0][0]
+		# The variance is (full consumed cost - standard value), where consumed cost includes prorated
-		self.assertEqual(flt(net), 50)
+		# additional costs. RM 5 x 50 = 250 plus a 30 additional cost = 280 consumed to make 1 FG valued
+		# at its standard 200 -> variance must be 280 - 200 = 80 (not 50).
+		mfg_variance = ensure_mfg_variance_account(PI_COMPANY)
+		additional_cost_account = "Expenses Included In Valuation - TCP1"
+		rm = create_standard_cost_item()
+		fg = create_standard_cost_item()
+		create_item_standard_cost(rm.name, rate=50, company=PI_COMPANY)
+		create_item_standard_cost(fg.name, rate=200, company=PI_COMPANY)
+
+		make_stock_entry(item_code=rm.name, to_warehouse=PI_STORES, company=PI_COMPANY, qty=10, basic_rate=50)
+
+		se = frappe.new_doc("Stock Entry")
+		se.purpose = "Repack"
+		se.stock_entry_type = "Repack"
+		se.company = PI_COMPANY
+		se.append("items", {"item_code": rm.name, "s_warehouse": PI_STORES, "qty": 5})
+		se.append("items", {"item_code": fg.name, "t_warehouse": PI_FG, "qty": 1, "is_finished_item": 1})
+		se.append(
+			"additional_costs",
+			{"expense_account": additional_cost_account, "description": "Freight", "amount": 30},
+		)
+		se.insert()
+		se.submit()
+
+		# FG is still valued at its own standard, regardless of the extra consumed cost.
+		fg_sle = frappe.db.get_value(
+			"Stock Ledger Entry",
+			{"voucher_no": se.name, "item_code": fg.name, "is_cancelled": 0},
+			["valuation_rate", "stock_value_difference"],
+			as_dict=True,
+		)
+		self.assertEqual(flt(fg_sle.valuation_rate), 200)
+		self.assertEqual(flt(fg_sle.stock_value_difference), 200)
+
+		def gl_net(account):
+			return flt(
+				frappe.db.sql(
+					"select sum(debit - credit) from `tabGL Entry` where voucher_no=%s and account=%s",
+					(se.name, account),
+				)[0][0]
+			)
+
+		# Raw material (250) + additional cost (30) - standard value (200) = 80 to Manufacturing Variance.
+		self.assertEqual(gl_net(mfg_variance), 80)
+		# The additional cost is credited out of its source account (it flowed into the variance).
+		self.assertEqual(gl_net(additional_cost_account), -30)
+
+	def test_manufacturing_variance_account_required(self):
+		# Without a Manufacturing Variance account, submitting a Standard Cost Manufacture/Repack must fail.
+		previous = frappe.get_cached_value("Company", PI_COMPANY, "default_manufacturing_variance_account")
+		frappe.db.set_value("Company", PI_COMPANY, "default_manufacturing_variance_account", None)
+		frappe.clear_cache(doctype="Company")
+		try:
+			rm = create_standard_cost_item()
+			fg = create_standard_cost_item()
+			create_item_standard_cost(rm.name, rate=50, company=PI_COMPANY)
+			create_item_standard_cost(fg.name, rate=200, company=PI_COMPANY)
+			make_stock_entry(
+				item_code=rm.name, to_warehouse=PI_STORES, company=PI_COMPANY, qty=10, basic_rate=50
+			)
+
+			se = frappe.new_doc("Stock Entry")
+			se.purpose = "Repack"
+			se.stock_entry_type = "Repack"
+			se.company = PI_COMPANY
+			se.append("items", {"item_code": rm.name, "s_warehouse": PI_STORES, "qty": 5})
+			se.append("items", {"item_code": fg.name, "t_warehouse": PI_FG, "qty": 1, "is_finished_item": 1})
+			se.insert()
+			self.assertRaises(frappe.ValidationError, se.submit)
+		finally:
+			frappe.db.set_value("Company", PI_COMPANY, "default_manufacturing_variance_account", previous)
+			frappe.clear_cache(doctype="Company")
 
 	def test_valuation_method_change_blocked_with_stock(self):
 		item = create_standard_cost_item()

erpnext/stock/doctype/stock_entry/services/gl_composer.py

@@ -38,8 +38,85 @@ class StockEntryGLComposer(BaseStockGLComposer):
 
 		self._append_lcv_gl_entries(gl_entries, inventory_account_map)
 
+		if doc.purpose in ("Repack", "Manufacture"):
+			self._append_manufacturing_variance_gl_entries(gl_entries)
+
 		return process_gl_map(gl_entries, from_repost=frappe.flags.through_repost_item_valuation)
 
+	def _append_manufacturing_variance_gl_entries(self, gl_entries: list) -> None:
+		"""For Standard Cost finished goods produced via Manufacture/Repack, stock is booked at the item's
+		standard rate, while the entry consumes raw-material (plus additional/landed) cost. The difference
+		is a manufacturing variance and is reclassified from the finished good's expense account to the
+		Manufacturing Variance account (mirrors Purchase Price Variance on a Purchase Receipt)."""
+		precision = self.get_debit_field_precision()
+		# Reuse the SLE map the base composer already fetched in compose() to avoid a second identical query.
+		sle_map = self._sle_map
+
+		for d in self.doc.get("items"):
+			variance = self._get_finished_good_variance(d, sle_map, precision)
+			if variance:
+				self._append_manufacturing_variance_pair(gl_entries, d, variance)
+
+	def _get_finished_good_variance(self, item, sle_map, precision) -> float:
+		"""Manufacturing variance for a Standard Cost finished good: the gap between the full computed
+		incoming cost (raw-material share + additional cost + LCV, i.e. ``amount``) and the standard value
+		actually booked into stock. Positive = consumed more than standard (unfavorable). 0 for anything
+		that is not a Standard Cost finished good."""
+		from erpnext.stock.utils import get_valuation_method
+
+		if not item.is_finished_item or not item.t_warehouse:
+			return 0.0
+
+		if get_valuation_method(item.item_code, self.doc.company) != "Standard Cost":
+			return 0.0
+
+		# Value actually booked into stock for this finished good = qty * standard rate.
+		standard_value = sum(
+			flt(sle.stock_value_difference) for sle in sle_map.get(item.name, []) if flt(sle.actual_qty) > 0
+		)
+
+		return flt(flt(item.amount) - standard_value, precision)
+
+	def _append_manufacturing_variance_pair(self, gl_entries: list, item, variance: float) -> None:
+		"""Reclassify ``variance`` from the finished good's expense account to its Manufacturing Variance
+		account, restoring the expense account to the value it would carry without Standard Cost."""
+		from erpnext.stock.doctype.item_standard_cost.item_standard_cost import (
+			get_manufacturing_variance_account,
+		)
+
+		doc = self.doc
+		variance_account = get_manufacturing_variance_account(item.item_code, doc.company)
+		cost_center = item.cost_center or frappe.get_cached_value("Company", doc.company, "cost_center")
+		remarks = doc.get("remarks") or _("Manufacturing Variance for {0}").format(item.item_code)
+		project = item.project or doc.get("project")
+
+		gl_entries.append(
+			self.get_gl_dict(
+				{
+					"account": variance_account,
+					"against": item.expense_account,
+					"cost_center": cost_center,
+					"remarks": remarks,
+					"debit": variance,
+					"project": project,
+				},
+				item=item,
+			)
+		)
+		gl_entries.append(
+			self.get_gl_dict(
+				{
+					"account": item.expense_account,
+					"against": variance_account,
+					"cost_center": cost_center,
+					"remarks": remarks,
+					"debit": -1 * variance,
+					"project": project,
+				},
+				item=item,
+			)
+		)
+
 	def _build_additional_cost_per_item_account(
 		self, total_basic_amount: float, divide_based_on: float
 	) -> dict:

erpnext/stock/services/base_stock_gl_composer.py

@@ -28,7 +28,7 @@ class BaseStockGLComposer(BaseGLComposer):
 		if not inventory_account_map:
 			inventory_account_map = doc.get_inventory_account_map()
 
-		sle_map = doc.get_stock_ledger_details()
+		sle_map = self._sle_map = doc.get_stock_ledger_details()
 		voucher_details = self.get_voucher_details(default_expense_account, default_cost_center, sle_map)
 
 		gl_list = []