Comparing Standard and Actual Costing

A company should decide to use either standard or actual costing depending on its business requirements. This table identifies considerations that affect the decisions of whether to use standard or actual costing:

Consideration	Explanation
Manufacturing	When you use actual costing methods, you should: Use discrete manufacturing. Use engineer-to-order or make-to-order practices and oversee the entry of all information on the work orders.
Inventory transfer	When you use the Manufacturing Last Cost method (09), you should: Be aware that transferring inventory for any purposes other than the cost of goods sold (COGS) might result in incorrect inventory value. Understand that processing for physical inventory might be more time consuming than with other cost methods.
Costing	When you use actual costing methods, maintain the inventory cost level at the item, branch, and location levels (inventory cost level 3) for best results.

Consideration

Explanation

Manufacturing

When you use actual costing methods, you should:

Use discrete manufacturing.
Use engineer-to-order or make-to-order practices and oversee the entry of all information on the work orders.

Inventory transfer

When you use the Manufacturing Last Cost method (09), you should:

Be aware that transferring inventory for any purposes other than the cost of goods sold (COGS) might result in incorrect inventory value.
Understand that processing for physical inventory might be more time consuming than with other cost methods.

Costing

When you use actual costing methods, maintain the inventory cost level at the item, branch, and location levels (inventory cost level 3) for best results.