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Hi All
As I said before, it is theoretically possible to set standards even for Raw
Materials , compare them with actual costs incurred and ascertain the
reasons for variances. Yes, internal evaluation controls for cost and
management accounting purposes can be established. As has been pointed out,
there may be American organizations using such procedure.
However, a more meaningful approach , in my opinion , would be to stick to
current market trends for accounting and valuation purposes instead of
adopting standard pricing. Sticking to current market trends helps you
decide appropriately and on time with regard to procurement activities.
Moreover, a variance analysis ( by adopting standard pricing and comparing
with actual costs) is usually done on annually to yield meaningful results.
It is neither practically feasible nor is it beneficial to do variance
analysis with shorter time intervals. Therefore , sticking to actual pricing
using MAP would be of more help in planning procurement and for valuating
inventories as a regular and ongoing activity.
It is more sensible to use standard pricing with regard to finished goods (
readily saleable materials ) as this would help in your determining selling
prices, fixing targets for sales and related production, determining break
even point and all such factors that help the management in decision making.
As Roy ( a person for whose opinions I regard very much ) pointed out, it is
a wise approach to stick to norms which are much closer to IFRS norms since
IFRS is going to be the prevailing global norm in the future.
Hope the clarification helps.
Regards
VidhyaDhar
| | | ---------------Original Message---------------
From: TombstoneMike
Sent: Wednesday, December 01, 2010 12:29 PM
Subject: Moving Average Prices update in Material Master for data migration
Thnx jrpatak. Standard Costing is quite common in the US, where differences between Standard and Actual for Materials is captured as PPV - Purchase Price Variance. It is also common in production where variances are identified as Production Variances. It's really only a process of comparing actual to standard and recognizing variances as they occur, not building them into inventory costs. |
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