Implications of having Std price as the control price for raw materials

[Former Member]

Hi,

Can someone tell me what are the implications of setting standard price as the control price for raw materials, instead of moving average price?

One implication is that the purchase price variance get affected to large extend as the prices go up. But, would like to know what its impact would be on product cost planning.

Thanks,

Ram

[former_member188826 · Accepted solution]

Product costing valuation strategies do not care what the price control is for the Raw materials. Whatever be, V or S, you get more options than V price and the S price, like directly reading the info records to value rawmaterials that are components in the BOM of higher level materials.

[Former Member · Accepted solution]

Thank you Sridhar, this clarifies!

[Former Member]

Hi Ram,

In Standard price with the variances being analysed the product cost planning can be done more accurately.

Observe the following.

Following are the Adv. and Dis Adv. of <b>Stndard Price</b>:

<b>ADV.</b>

1.All stock postings take place at the standard price

2.Prices remain constant throughout at least one period

3.Price fluctuations do not debit/credit the cost objects (e.g. orders) &#61660; consistant controlling with the standard price as a bench mark

4.Calculation of the standard prices with cost component splits

Recommended for all material types

<b>Dis. Adv.</b>

1.Price differences cannot be subsequently adjusted to the ending inventories or the consumed products (sales, production withdrawals)

Following are the Adv. And Dis Adv. of <b>Moving Average Price</b>:

<b>ADV.</b>

1.The stock value is adjusted each time goods are received

2.Real-time price fluctations are posted to stock

3.Price difference postings only take place in exceptional cases

<b>Dis. Adv.</b>

1.Price fluctuations cannot be adjusted to the finished products of higher levels (S price)

2.Only recommended for raw materials or goods procured externally (real-time price for goods receipt known)

3.<b>False entries with severe consequences</b> (compounded errors)

4.<b>Danger of incorrect valuations with delayed invoice receipt</b>

Regards,

Vijay