About Standard Cost

Cost Elements

 

1. Material The raw material/component cost in the lowest level of the bill of Material Det Ermined from the component item.

2. Material Overhead The overhead cost of Material, calculated as a percentage to the total cost, or a s a fixed charge per item, lot, or activity. You can use the material overhead for any costs attributed to direct material costs. If you use Work in Process, you can also apply material overhead at the assembly level using a variety of allocation E methods.

3. Resource Direct costs, such as people (Labor), machines, space, or miscellaneous charges , required to manufacture products. Resources can is calculated as the standard resource rate times the standard units in the routing, per operation, or as a Fixed charge per item or lot passing through a operation.

4. overhead The overhead cost of resource and outside processing, calculated as a Percentag E of the resource or outside processing cost, as a fixed amount per resource unit, or as a fixed charge per item or lot PA Ssing through an operation. Overhead is used as a means to allocate department costs or activities. For example, your can define multiple overhead subelements to cover the fixed and both variable, each with its overhead rat E. Can assign multiple overhead subelements to a single department, and vice versa.

5. Outside processing

This is the cost of outside processing purchased from supplier. Outside processing May is a fixed charge per item or lot processed, a fixed amount/Outside processing Unit, O R the standard resource rate the standard units on the routing operation. To implement outside processing costs, for must define a routing operation, and use a outside processing.

Costs incurred, Costs relieved, variances relieved and Net activity

Costs incurred : Costs associated with material issues/returns, resource, and overhead transactions of a job or repetitive. This can is computed as:

Cost incurred = Issued Quantity * component/unit cost

Costs relieved : Standard costs relieved by the cost element is assemblies from a job or repetitive schedule are completed or scrapped. This can is computed as:

Relieved cost = Material cost (based on completion date) * Completed quantity

variances relieved: Variances relieved by cost element when a job or accounting period are closed, or when a repetitive schedule is cancelled. This can is computed as:

Variances relieved = Cost Incurred-cost relieved

Note:this is after Closing the order of Work

Net activity: Cost element net activity, the difference between the costs incurred and the costs and variances. This can is computed as:

Net activity = Cost Incurred-cost relieved

Note:this is before Closing of Work order

Standard Cost Valuation The Inventory and Work in Process continually update Inventory the value with the each transaction. Work in Process balances are updated with each related accounting transaction. Inventory subinventory values may be reported the quantity movement occurs.

 

Value by cost Element Inventory or work in process value are maintained and reported on by distinct the cost element (such as material, material over Head, and "," even if you assign the same general Ledger valuation account to each of the cost element. You can also the work in process value by cost element within specific WIP accounting classes.

Standard costing Under standard costing, the value of inventory is determined using the material and material overhead standard of EA CH Inventory item. If use Bills of Material, Inventory maintains the standard-cost element (Material, Material overhead, resource , outside processing, and overhead).

 

Unlimited cost Types

You can define an unlimited number of the cost types and use them with the any inventory valuation and margin. This allows the potential effects's a cost rollup/update. You can also update your standard costs to the the cost types you have defined. When your use is Bills of Material with Inventory, you can specify the cost type in explosion reports and the above costs F or simulation purposes.

Standard cost Variances

Standard cost Inventory variances Inventory Records Purchase price variance (PPV) and recognize cycle count and physical Inventory adjustments a s variances.

 

Purchase Price Variance (PPV) During a purchase order receipt, Inventory calculates purchase the price variance. In general, this is the difference between what your pay the supplier and the Item’s cost. Inventory calculates this value as follows:

PPV = (PO unit price†"standard) x Quantity received Inventory updates the purchase price Variance account W ith the PPV value. If the purchase order price are in a foreign currency, Inventory converts it into the functional currency of the Inventory Organization and calculates the purchase price variance. Purchasing reports PPV using the Purchase price variance. You are distribute this variance to the general Ledger when you perform the general ledger transfer, or period close.

Invoice Price Variance (IPV) In general, invoice price variance are the difference between the purchase price and the invoice price paid for a purchase Order Receipt. Purchasing Reports invoice Variance. Upon invoice approval, Payables automatically records invoice price variance, to both invoice price variance and Exchange Rate Variance accounts.

Cycle Count and physical Inventory Inventory considers cycle count and physical Inventory adjustments as variance. You distribute this variances to the general Ledger when you perform the general ledger transfer or period close.

manufacturing Standard cost variances

· Work in Process provides usage, efficiency, and standard the cost adjustment variances.

 

Usage and efficiency variances

o Usage and efficiency variances The total costs charged to a job or schedule does not equal the total cos TS relieved from a job or schedule at standard. Charges occur from issues and returns, resource and overhead Charges, and outside processing. Cost relief occurs from assembly completions, scrap transactions, and close transactions.

o Usage and efficiency variances are primarily quantity. They identify the difference between the amount of material, resources, outside processing, and overheads required at Stan Dard, and the actual amounts you are to manufacture a assembly. Efficiency variance can also include rate variance as "as" quantity variance if you charged resources or outside Proces Sing at actual.

 

Material Usage Variance

o The material usage variance is the difference between the actual material issued and the standard material D to build a given assembly, calculated as follows:

Standard material cost x (Quantity issued†"quantity required)

o This variance occurs if you are over or under issue components or use a alternate bill.

 

Resource and Outside processing efficiency variance

o the resource and outside processing efficiency variances is the difference between the resources and outside processing Charges incurred and the standard resource and outside processing charges to build a required given, assembly a S follows:

(Applied resource units x Standard or actual rate) â € "" (standard resource units at standard resource)

o This variance occurs if you are alternate routing, add new operations to a standard routing , assign costed no†"direct charge operations skipped by shop floor moves, overcharge or undercharge a Reso Urce, or charge a resource at actual.

 

Move Based overhead efficiency Variance

O Move based overhead efficiency variance are is the difference between overhead charges incurred to move based Overhea DS (Overhead basis for Item or Lot) and standard move based overheads required to build a given assembly, calculated as Fol Lows:

Applied move based overheads†' standard move based overheads

o This variance occurs if you are alternate routing, add operations to a standard routing-during production, or do no T complete all the "move" transactions associated with the assembly quantity being.

 

Resource Based Overhead efficiency Variance

o Resource based overhead efficiency variance is the difference between overhead charges incurred for Resource based Overheads (overhead basis of Resource units or Resource value) and standard Resource-based overheads required to build a Given assembly, calculated as follows:

Applied Resource based overheads†"standard resource based

Overheads

o This variance occurs if you have a alternate routing, add New

Operations to a standard routing during production, assign costed resources to no†' direct charge operations skipped by Shop floor moves, overcharge or undercharge a resource, or charge a resource at actual.

 

Standard Cost Adjustment Variance

o Standard Cost Adjustment variance are the difference between costs at the previous standards and costs at the new Standar DS created by cost update transactions.