Difference between Standard Cost & moving average

[Former Member]

Hi,

What is the difference & impact between standard cost & moving average? if we want to know the P/L for a particular month? how do we know this?

Thanks.

Appreciate your advice.

Thanks.

Rgds,

Harith

[former_member583013 · Accepted solution]

Hello Harith

http://help.sap.com/saphelp_sbo2007a/helpdata/en/7f/1b768fcf2749ca8dfdb79219177678/frameset.htm

Standard Cost means fixed cost defined in the Item Master. So every time a Receipt or Delivery transaction is made the Cost of the Item will get booked to G/L at the Standard Cost. If you Purchase price is higher than the Cost defined the difference will get posted to Variance Account. Same is the case on the Delivery side.

I will explain this with an example of item A

Let us say you receive Item A at the following prices and you have the standard cost set at $10

Receipt 1 - A 10 units $10

Receipt 2 - A 10 units $12

Receipt 3 - A 10 units $9

When you have a standard cost the Inventory is always recorded at the Stadard cost and the different between the cost on the Receipt and the Standard Cost is debited / credit to Price Variance account.

Looking at the above 3 receipts. The first GRPO will result in a regular Journal entry

Inventory Account .....................Dr $100 ..........($10 x 10)

Goods Received Not Invoived .....Cr $100

The Second one will have

Inventory Account ......................Dr $100 ..........($10 x 10)

Variance ...................................Cr $20 .........($ 2 x 10)

Goods Received Not Invoiced.......Cr $120

When you sell A the COGS will always be recorded at $10 (being the standard cost)

Let me know if you need further assistance on this

Suda

[Former Member · Accepted solution]

Hi suda,

Thank you for the info. This variance (if we set to Standard cost), initially we have to determine to post into which variance charge code right? Do we set this at the item group stage? or is it under G/L determination?

Appreciate your advice.

Thanks.

Rgds

Harith

[former_member583013 · Accepted solution]

Exactly correct, in the G/L determination you will set the Variance account for this.

Definition:

Variance Acct

This G/L account is used only in a standard price inventory system. In specific scenarios, if there are differences between the standard price and the actual price in the purchasing document, these differences will be recorded in the variance account.

[former_member186095]

Hi,

The different and impact between both are :

1. Standard cost is usually used in the manufacturing company for the final product and the moving average is used in the final product raw material

2. The average cost is calculated for each inventory increase or decrease, valued by average. It is calculated as the sum of the invoiced and expected costs divided by the sum of the quantity on hand for value entries with a valuation date equal to or earlier than the inventory decrease being valued.

For the standard costing method, the inventory increases are valued at the current standard cost.

Rgds,

[former_member583013]

Harith,

The Help files explains the Moving average very well with examples. Link for the same....

http://help.sap.com/saphelp_sbo2007a/helpdata/en/27/9700ec7367444cbda17ca38c3b3f81/frameset.htm

Suda