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Average costing is used primarily for distribution and other industries where the product cost fluctuates rapidly, or when dictated by regulation and other industry conventions. Average costing allows you to:
Average Costing | Standard Costing |
---|---|
Material with Inventory; all cost elements with Bills of Material | Material and material overhead with Inventory; all cost elements with Bills of Material |
Item costs held by cost element | Item costs held by cost sub-element |
Unlimited sub-elements | Unlimited sub-elements |
No shared costs; average cost is maintained separately in each organization | Can share costs across organizations when not using Work in Process |
Maintains the average unit cost with each transaction | Moving average cost is not maintained |
Separate valuation accounts for each cost element | Separate valuation accounts for each subinventory and cost element |
No variances for Work in Process Transactions | Variances for Work in Process transactions |
Table 1 - 2. Comparison of Standard and Average Costing |
Under standard costing if you use Inventory without Work in Process, you can define your item costs in the organization that controls your costs and share those costs across organizations. If you share standard costs across multiple organizations, all reports, inquiries, and processes use those costs. You are not required to enter duplicate costs. See: Organization Parameters Window and Defining Costing Information.
Note: The organization that controls your costs can be a manufacturing organization that uses Work in Process or Bills of Material.
Organizations that share costs with the organization that controls your costs cannot use Bills of Material.
Note: Cost Management enforces the same account number for organization level material and intransit accounts. Otherwise the balances of inventory valuation reports do not equal the sum of accounting transactions.
Inventory Standard Cost Transactions
Work in Process Standard Cost Transactions
Overview of Average Costing: page
Inventory Average Cost Transactions
Work in Process Average Cost Transactions
Inventory Standard Cost Variances
Work in Process Standard Cost Variances
Inventory and Manufacturing Costing Compared
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