Standard cost estimate with alternative raw materials

[former_member224726]

Dear Experts,

how the standard cost estimate will be done where a finished product is manufactured with a set of raw materials where in each raw material has five or six alternative materials.

lets say ten raw materials are required to produce a finished product but each of those raw materials can be replaced with five or six other similar materials. As per my knowledge, a BoM will be created by mentioning one raw material as the main and the other replacements as alternatives.

Now in this scenario, how will the std cost estimate will be done and even if it is done by taking the main raw material into consideration, it is for sure that there will be a diff in the actual and standard which may not be a minor one.

thanks in advance

Suresh

[ajaycwa1981 · Accepted solution]

Hi Suresh

1. Easiest option is to have std cost based on main raw material... If any other raw mat is used in prod order, it will reflect as usage variance

2. Another option is

a. to create 6 alternative BOMs and 6 prod versions.. Assign each BOM in its respective prod versions

b. In CK91, create a proc alternative for each prod version and maintain a mix ration in CK94 for them

c. Now when you do std cost estimate in CK11N, it will be a weighted average std cost based on all the BOMs and the weighing factor you maintain in CK94

Regards

Ajay M

[former_member224726 · Accepted solution]

Dear Ajay,

thanks for the quick reply and the second option may not be viable as there will be lot of BoMs to be created. My concern is that the stock value may not show the a proper picture.

thanks

Suresh

[ajaycwa1981 · Accepted solution]

Hi

As i said, these are the only options

The 2nd option is the std option in such situations.. It reduces the variances reported as the std cost is based on average of all

I guess the choice lies with the business.. ask your client/finance team to take a decision and implement accordingly

Regards

Ajay M

[former_member224726 · Accepted solution]

Hi Ajay,

The trouble with second option is, i have to create a Lot of BoMs. There are ten raw materials to be used for the finished product. And there are six alternative materials available for each raw material. so if we create BoM for each combination, then we will be looking at something like 10 to the power 6 or 6 to the power 10 number of BoMs (correct me if i am wrong).

As you said, this needs to be discussed with the Client and will try to share my solution.

Thanks for your quick replies

Suresh.