Standard Cost Method

Use standard costs for inventory valuation to simplify your transaction accounting. For items that use other cost methods for transaction accounting (such as the perpetual average cost method), you can still use standard costs for simulation and planning purposes.

Configuring Item Attributes to Enable Costing

The following Costing prerequisite settings should be configured on the Manage Items page of the Product Information Management work area:

• Costing Enabled. Set this attribute to Yes to report, value, and account for item costs.

• Include in Rollup. Set this attribute to Yes to include an item in the cost rollup.

For more information on configuring Product Information Management settings for Cost Planning, see the guide Using Product Master Data Management.

Setting Up and Updating Standard Costs

Define the standard cost for a new item based on purchase information such as quotes from vendors, purchase contracts, or bill of material. Periodically review the variance between actual transaction costs and the standard cost of an item, and update the standard cost to ensure that it is close to actual costs.

Inventory Value Adjustments Based on Standard Cost

When you implement a new standard cost for an item, the standard cost processor automatically creates accounting adjustments to update inventory value. The adjustment is based on the revaluation of on-hand inventory as of the effective start date for the current standard cost. The adjustment amount is calculated as follows:

Cost Adjustment = (New Standard Cost minus Current Standard Cost) multiplied by Quantity on Hand