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Former Member
May 11, 2010 at 10:27 AM

Inventory Valuation as per Actual Cost of Production

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Hi

We have received a specific business requirement from our management. The requirement is the inventory valuation from the production should be based on the actual production cost. Currently, it is happening on standard / planned cost in the production order.

The business scenario is as follows:

(a) We are using the Make to Order and Make to Stock production. We daily does the production (manufacturing) of more than

300 number of orders and each production order contains on average of 5-6 component orders. The dispatch to

customers may or may not happen on the same time of the production confirmation.

(b)Our Business Scenario is as follows:

(a) We deals with Gold and Diamond Jewellery

(b) Material Code = u201CDiamond Ringu201D & we use common Bill of Materials, Routing, Activity Rates and Overheads for

material code u201CDiamond Ringu201D

(c) We are following standard cost estimate

(d) Currently the FG inventory is valuating based on standard cost estimate / Planned cost in the production order.

(e) The difference between the actual cost of production vs standard / planned cost is being posted to u201Cprice

variance accountu201D during settlement of the production order.

(c) Business Requirement :-

If we manufacture 4 materials u201CDiamond Ringsu201D in the same day through different production orders, the actual

consumption value of the gold and diamond (Raw materials through Bill of Materials) may be different for

each u201CDiamond Ringu201D.

Here, the business team requirement as the actual production cost to be the value of Finished Goods and the same

value needs to be carried by the system till the dispatch to the customer in the sale process. We have given a small

illustration as below:

Production Material Code Quantity Standard / Planned Cost Actual Cost (Manufacturing Cost)

Order No.

100 Diamond Ring 1 1000 1100

101 Diamond Ring 1 1000 900

102 Diamond Ring 1 1000 1000

103 Diamond Ring 1 1000 1200

The inventory value is required for each production order number wise as per the actual cost of the production in the

financial books (hence there will not be any price variance during the settlement of the production order & the inventory

value should show as follows) till the delivery happens to the customer.

Material Code Unique Identification Value of Inventory

Diamond Ring 12345 1100

Diamond Ring 45678 900

Diamond Ring 91234 1000

Diamond Ring 56789 1200

kindly suggest, is there any procedure where i can consider the actual manufacturing cost in the production order is my inventory value

Regards

Anilkumar