Standard Costing

Introduction to opentaps Standard Costing

Standard costs are predetermined costs assigned to inventory items which are based on the typical raw materials prices and manufacturing costs for the finished goods under normal conditions. Some manufacturers prefer to use standard rather than actual costs when accounting for the value of their inventory. This provides a stable inventory value until you decide to change it, since it suppresses the effect of fluctuations in material costs, and actual manufacturing operations on the cost basis of their inventory.

Any variation between standard costs you are using, and actual costs that are experienced from time to time is routinely recorded in your inventory cost variance general ledger account. Opentaps can support using standard rather than actual costs for inventory management.

Configuring for Standard Costs

To configure using standard costing proceed as follows:

Navigate from the Main Navigation screen,
Click: [Financials] Icon > {Configuration] Tab > [View Configuration] shortcut button
Enter in the "Costing Method ID" field: STANDARD_COSTING
Make sure to place the underscore (_) symbol between the two words, blank is not
   allowed in any ID used by the system
Click: [Update}

If you are using a release earlier than Version 1.4, you need to use system administrator assistance to configure the following database entity using the Web Tools functions of the system:

Configure the costingMethodId of PartyAcctgPreference to
STANDARD_COSTING when setting up your organization's accounting 
preferences costing.  

Using Standard Costing

Having completed the Standard Costing preference as outlined, the opentaps system will do the following:

1. When inventory is received on the Receive Against PO screen, the value of the inventory items will be the standard cost of the products, rather than their prices on the purchase orders.
2. When inventory is received on the Receive Inventory Item Screen, it will automatically default to the standard cost of the product, regardless of your costing method.
3. When you are ready to complete a production run on the View Production Run screen, it will receive the finished goods into inventory at standard costs rather than the actual cost to produce them based on the time and materials required.
4. In all instances, cost differences between the standard cost and the actual cost will be charged off to a cost variance account when the transaction is recorded, for example when the production run is closed.

Updating the Standard Costs

When you need to update your Standard Costs to more current values, you will perform what is sometimes called a "cost roll" where the values are updated. You may need to perform these two changes:

* Use the catalog manager, look up the products you need to change, open the Costs
   tab, and update the Standard Costs listed there to reflect your updated values.
* Use the Adjust Inventory Values screen to do the "cost roll"  on items currently
   held in inventory, assuming you want to update those values immediately rather
   than using them at the old valuation.

NOTE: If you have standard cost configured for your organization and your product has standard costs defined as well, then you can receive the product before it is completed during a production run. The product will be received into inventory at its standard cost, and the reconciliation of standard versus actual manufacturing cost will occur when the production run is completed.

See also: Standard Costing Tests