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Standard Cost vs Moving Average

Former Member
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Hi all,

I'm wondering if someone can explain with a bit more detail how SBO handles standard cost.

I know how to set it up and why it's there, but I'm curious how some clients use it and their procedures around managing it.

How do auditors react to it, does it require more work to maintain, is there anything in SBO to help manage the adjustment of variances?

If I switch some finished BOM inventory items to standard cost will there be any long term negative effects such as over/understated revenue?

TIA,

Mike

Accepted Solutions (1)

Accepted Solutions (1)

Former Member
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Hi Mike,

Standard Cost is the most simple costing method compared to Moving Average and FIFO - simple in term of COGS calculation of Finished Goods.

But beyond the simplicity, there is a big demand to come up with a standard cost that is as close as possible to the actual cost and to minimize the variance. Which means you need to periodically and continually review the accuracy of the standard cost.

The variance should be considered as part of Cost of Sales, and I don't think it would be a problem with auditors as long as the amount of the variance is 'reasonable'.

I suggest that before you set up the standard cost, discuss it with related departments especially with accounting dept, to refer to the most representative actual cost based on historical data though you can also consider other forecasted cost factors.

Cheers,

Marini

Answers (4)

Answers (4)

Former Member
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Thanks everyone! Useful answers.

Mike

Former Member
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I can concur with all the previous comments.

However, if you use Production Orders be aware that although the Standard Cost of a BOM item can be recalculated using the Standard Costs of it's components (using Standard Cost) Pricelist, the costs used when using Production Orders it that which is defined in the Item Master. This would mean that any Global revaluation of BOM's using the built in routine WILL update the BOM parent item cost in the Procelist it DOES NOT update the cost on the Item Master. This needs to be changed using Stock Revaluation and if you have a lot of BOM's this can be a nightmare.

Maybe, one day, SAP will offer a routine to update the Standard Cost of the Item Master to that defined in a Pricelist but until then you takes your chance.

Regards,

David

JesperB1
Product and Topic Expert
Product and Topic Expert
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Hi Mike,

Revenue is not affected by the type of valuation method you choose for the Item, the Gross Profit as reported in the Sales Analysis might be affected if there is a large deviation between the standard and tha actual cost.

Either way, if you have set your accounts correct (= P&L accounts in the right place), in the long run the Gross Profit as it is reported in your income statement (profit and loss) will be correct (the same) with both Standard or Moving Average.

There might be a slight variance between the 2 depending on the cut off point and on the actual variance. You could expect a larger amount of the COGS (= variance being a part of COGS) being posted at the time of the purchase than when dealing with a Moving Average Item.

I hope that was somewhat clear...

Anything unclear, ask again.

Jesper

Former Member
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Hi,

Heres a summary.

Moving Average u2013 This option calculates the inventory value by the item's cost price.

The item's Cost Price field is found in Inventory - Item Master Data - Inventory Data

tab page. This field is updated dynamically by every stock receipt posting.

Standard u2013 This option calculates the inventory value by a fixed price. The Cost Price

field is found in Inventory - Item Master Data - Inventory Data tab page.

The item's standard price should be set before you start working in your company.

Regards,

Clint