What is the difference & impact between standard cost & moving average? if we want to know the P/L for a particular month? how do we know this?
Appreciate your advice.
Standard Cost means fixed cost defined in the Item Master. So every time a Receipt or Delivery transaction is made the Cost of the Item will get booked to G/L at the Standard Cost. If you Purchase price is higher than the Cost defined the difference will get posted to Variance Account. Same is the case on the Delivery side.
I will explain this with an example of item A
Let us say you receive Item A at the following prices and you have the standard cost set at $10
Receipt 1 - A 10 units $10
Receipt 2 - A 10 units $12
Receipt 3 - A 10 units $9
When you have a standard cost the Inventory is always recorded at the Stadard cost and the different between the cost on the Receipt and the Standard Cost is debited / credit to Price Variance account.
Looking at the above 3 receipts. The first GRPO will result in a regular Journal entry
Inventory Account .....................Dr $100 ..........($10 x 10)
Goods Received Not Invoived .....Cr $100
The Second one will have
Inventory Account ......................Dr $100 ..........($10 x 10)
Variance ...................................Cr $20 .........($ 2 x 10)
Goods Received Not Invoiced.......Cr $120
When you sell A the COGS will always be recorded at $10 (being the standard cost)
Let me know if you need further assistance on this
The different and impact between both are :
1. Standard cost is usually used in the manufacturing company for the final product and the moving average is used in the final product raw material
2. The average cost is calculated for each inventory increase or decrease, valued by average. It is calculated as the sum of the invoiced and expected costs divided by the sum of the quantity on hand for value entries with a valuation date equal to or earlier than the inventory decrease being valued.
For the standard costing method, the inventory increases are valued at the current standard cost.