Understanding Standard Costing for Purchased Items

When items are defined with a frozen standard cost profile, the Transaction Costing process (within the Cost Accounting Creation process):

• Values all receipts (putaways) at the frozen standard cost.

• Values all depletions using the frozen standard cost.

• Purchase price variance (PPV) is calculated as the difference between the frozen standard cost and the actual cost on the matched, posted, and extracted vouchers.

  The exchange rate variance (ERV) is the change between the exchange rate for material and landed costs on the PO and the exchange rate for material and landed costs on the voucher. These variances are calculated when you run the Transaction Costing process with the Cost Mode of Regular. To delay calculation of the variances, run the Transaction Costing process in Mid Period mode. Based on the timing of the voucher processing, the Landed Cost Extract process and the Transaction Costing process, the Purchase Price Variance could be computed and posted in two parts: standard vs. PO price, and PO price vs. voucher price, or in one part alone: standard vs. voucher price.

The standard cost of an item can be:

• Calculated using the Cost Rollup process, followed by the Update Production process (Cost Update/Revalue process page). This method creates accounting entries to adjust the current on-hand stock to the new standard cost.

• Manually adjusted using the Item Production Costs page for new items that have no activity.

  This method only affects future transactions. The current inventory balance is still based on the old standard cost. This approach is not recommended for most organizations.