Standard Costing Example

1. After you set item record A to use Standard Costing, you enter the following cost versions and standard costs for Item A:

   Item	Cost Version	Standard (Fixed) Cost	Cost Category
   Item A	Q3 2020	$7.00	Material: metal
   Item A	Q4 2020	$6.00	Material: metal
   Item A	Q1 2021	$7.00	Material: metal

   To break up costs by category, you can assign a different cost category to each cost version.

2. To set standard production cost using the Q3 2020 cost version, run a bulk inventory revaluation.

   That cost applies to any transactions and records dated on or after the cost version's effective date.

   Item	Cost Version	Standard (Fixed) Cost	Cost Category	Effective date
   Item A	Q3 2020	$7.00	Material: metal	July 1, 2021

3. The transaction for Item A on August 1, 2021 identifies a cost category of Material: metal and has a fixed standard cost of $7.00.

Now you can compare costs for Item A to see if they're higher, lower, or as expected. For example, you enter a receipt for a shipment of Item A on August 10, 2021. The cost on the receipt is $10.00. You can track the cost variance.

• Standard cost on August 10 = $7.00

• Actual cost on August 10 = $10.00

• The difference between standard and actual cost is (10 - 7 = 3)

  NetSuite posts a variance for the difference:

  • $7.00 posts to the inventory asset account

  • $3.00 posts to the variance account

Posting Purchase Price Variance Intermittently

Rounding corrections can affect Intermittent Posting Purchase Price Variance amounts. This can happen when items using cost component lines contain costs that require less than 0.01 precision on the effective inventory revaluation. Since rounding happens on each cost component line as transactions are created for an item, NetSuite makes balancing adjustments.

When an item uses standard costing, the transaction item cost is the sum of the element cost from the effective inventory revaluation.

Each cost element is rounded according to its subsidiary base currency. As the system perform rounding during cost calculations, variances per cost element can differ. The more cost elements the item has, the higher the possible variance.

Standard Costing Variance Example

1. As of January 1, the Toronto and Brno locations have the following standard cost item revaluation:

   New Unit Cost is 5.05292175:

   • Material Cost Category: 2.85

   • Material Overhead Cost Category 1: 0.9405

   • Material Overhead Cost Category 2: 0.17087175

   • Landed Cost Category 1: 0.03705

   • Landed Cost Category 2: 0.03705

   • Landed Cost Category 3: 0.171

   • Landed Cost Category 4: 0.171

2. On January 2, an inventory adjustment of 183 was applied to the Toronto location with the following general ledger impact:

   Account or Accounting Line Type	Amount	Location
   Adjustment Account	-924.68	Toronto
   Asset Account	924.68	Toronto

3. On the same day an inventory adjustment of 360 was made to the Brno account:

   Account or Accounting Line Type	Amount	Location
   Adjustment Account	-1819.05	Brno
   Asset Account	1819.05	Brno

4. January 3 saw an inventory transfer of 6 from Brno to Toronto:

   Account or Accounting Line Type	Amount	Location
   Asset Account	30.31	Toronto
   Asset Account	–30.31	Brno
   PPV Account	0	Toronto

5. On January 3 an inventory transfer of 348 was sent from Brno to Toronto:

   Account or Accounting Line Type	Amount	Location
   Asset Account	1758.44	Toronto
   Asset Account	–1758.41	Brno
   PPV Account	0.03	Toronto

6. On January 3 an inventory transfer of 6 was sent from Brno to Toronto:

   Account or Accounting Line Type	Amount	Location
   Asset Account	30.30	Toronto
   Asset Account	–30.33	Brno
   PPV Account	0.03	Toronto

In steps 5 and 6, there's a PPV line of 0.03, even though both Toronto and Brno have the same standard cost. The inventory transfer in step 6 has a different impact than step 4 even though the quantities are the same.

After step 6, Brno’s on hand quantity is 0. If step 6 used the same cost as step 4, the ending inventory asset account value should be 0.02. This is incorrect since there's no quantity at the Brno location because the system makes cost balancing adjustments.

Related Topics

• Standard Costing Workflow
• Enabling Standard Costing
• Creating Cost Categories
• Creating Inventory Cost Templates
• Setting Up Item Records for Standard Costing
• Defining Cost Versions
• Entering Planned Standard Cost Records
• Standard Cost Rollup
• Revalue Standard Cost Inventory
• Standard Costing and Transactions
• Assembly Build Production Cost Variances
• Standard Costing FAQ
• Standard Costing Reporting
• Standard Costing

General Notices