HI,
Can anyone tell me the procedures involed in converting from Standard Costing to Average Costing and vice versa. What are the accounting impacts this will make.
Regards
Vinoth.
Conversion from STD Costing to AVG Costing
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vinothbharathi
- Posts: 7
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- Location: India
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Willynelly1
- Posts: 53
- Joined: Tue Sep 04, 2007 7:26 am
- Location: Kuwait
Hi Vinoth,
<u>Need to keep in mind the following:</u>
1. Cost group is associated with Average costing method. If you do not have Project Manufacturing
or Warehouse Management, then a single cost group is generated when you create the average costed
inventory organization and this is the only one that you can have.
If you have Project Manufacturing, then you can have multiple cost groups and associate one or more
projects with each cost group. Costs are then maintained separately for each cost group - by
reference to the project of the transaction.
If you have Warehouse Management, you can define multiple cost groups and WMS defaulting rules to
determine which cost group to use.
2. A new Inventory Organization needs to be created. Assign all the items to it that are in the existing organization.
Transfer item quantities to the new organization.
Create a new all POs and sales orders, WIP jobs, etc.
3. You can transfer all on-hand inventory from one organization to the next using the transaction open interface,
entering the standard cost as the transfer cost into the new organization.
This will become the starting basis for the current average cost in the new organization.
4. When you define the new inventory organization, the system will assign all of your organization level
valuation accounts to a cost group. If you are not using PJM or WMS, this is the only cost group
that can be used. Under standard costing your subinventories can have different valuation
accounts (and hence different cost groups), but in average costing this is only possible if using
WMS or PJM.
5. If you are in production, you must copy BOMs and routings to the new organization. You will
have to define an 'average rates' cost type and enter this in the new organization parameters. Then
define any applicable overheads, labor rates, etc. in the new organization and tie them to this
cost type. You do not have to do cost rollups in the new organization, since the WIP costs are transaction
based and do not rely on a predefined standard value.
6. The transfer should be planned for ahead of time to close all possible work orders in the old
organization, and then open new ones in the new average cost organization. Do not try to open a
half finished work order in the new organization; finish it in the old.
7. If you have any open sales orders or purchase orders, you must update the pick from and
deliver to organizations in the SOs and POs. Note that in an average cost organization, there will not be
any purchase price variances since there are no standards. Invoice price variances will continue
to be calculated.
8. Once all activity is transferred, perform the month end close process in the old organization, and then
deactivate it. If you are using Organization Access, be sure to unlink responsibilities from the
old organization and tie them to the new organization when you are ready to commence using it.
9. Monitor costing activity in the new organization. Transactions are costed in date/time
sequence, and if a transaction is 'stuck' and cannot be costed, no later transactions will be
costed until the it is fixed. Transactions should be brought over to the
general ledger at least once a week so that uncosted transactions can be caught and resolved
early. Having uncosted transactions will prevent them from closing the month.
10. You will have to perform the following tasks:
1) Set up all of the modules in the new organization.
2) Enable all item numbers in the new organization.
3) Transfer all the on-hand inventory from the old organization to the new organization.
4) Change the ship-to address on all open purchase orders from the old org to the new og
5) Change the deliver-from organization on all open sales orders from the old org to the new org
6) Open work orders in the new organization. It would be best to complete existing work orders in the old
organization and then open new ones from the go-forward date in the new organization if this is feasible.
7) Financially close the old organization .
The main benefit of switching from standard to average costing is that you no longer have to
update your costs -- the system does it for you based on transactions.
The disadvantage of switching to average costing is that you must now monitor your cost
transactions to ensure that any 'stuck' transactions are promptly cleared. The cost processer
will cost transactions in date/time sequence, so if a transaction fails,
it will prevent any later transactions from being costed. Uncosted transactions
cannot be passed to the general ledger, which means you cannot close month-end.
Regards,
William.
<u>Need to keep in mind the following:</u>
1. Cost group is associated with Average costing method. If you do not have Project Manufacturing
or Warehouse Management, then a single cost group is generated when you create the average costed
inventory organization and this is the only one that you can have.
If you have Project Manufacturing, then you can have multiple cost groups and associate one or more
projects with each cost group. Costs are then maintained separately for each cost group - by
reference to the project of the transaction.
If you have Warehouse Management, you can define multiple cost groups and WMS defaulting rules to
determine which cost group to use.
2. A new Inventory Organization needs to be created. Assign all the items to it that are in the existing organization.
Transfer item quantities to the new organization.
Create a new all POs and sales orders, WIP jobs, etc.
3. You can transfer all on-hand inventory from one organization to the next using the transaction open interface,
entering the standard cost as the transfer cost into the new organization.
This will become the starting basis for the current average cost in the new organization.
4. When you define the new inventory organization, the system will assign all of your organization level
valuation accounts to a cost group. If you are not using PJM or WMS, this is the only cost group
that can be used. Under standard costing your subinventories can have different valuation
accounts (and hence different cost groups), but in average costing this is only possible if using
WMS or PJM.
5. If you are in production, you must copy BOMs and routings to the new organization. You will
have to define an 'average rates' cost type and enter this in the new organization parameters. Then
define any applicable overheads, labor rates, etc. in the new organization and tie them to this
cost type. You do not have to do cost rollups in the new organization, since the WIP costs are transaction
based and do not rely on a predefined standard value.
6. The transfer should be planned for ahead of time to close all possible work orders in the old
organization, and then open new ones in the new average cost organization. Do not try to open a
half finished work order in the new organization; finish it in the old.
7. If you have any open sales orders or purchase orders, you must update the pick from and
deliver to organizations in the SOs and POs. Note that in an average cost organization, there will not be
any purchase price variances since there are no standards. Invoice price variances will continue
to be calculated.
8. Once all activity is transferred, perform the month end close process in the old organization, and then
deactivate it. If you are using Organization Access, be sure to unlink responsibilities from the
old organization and tie them to the new organization when you are ready to commence using it.
9. Monitor costing activity in the new organization. Transactions are costed in date/time
sequence, and if a transaction is 'stuck' and cannot be costed, no later transactions will be
costed until the it is fixed. Transactions should be brought over to the
general ledger at least once a week so that uncosted transactions can be caught and resolved
early. Having uncosted transactions will prevent them from closing the month.
10. You will have to perform the following tasks:
1) Set up all of the modules in the new organization.
2) Enable all item numbers in the new organization.
3) Transfer all the on-hand inventory from the old organization to the new organization.
4) Change the ship-to address on all open purchase orders from the old org to the new og
5) Change the deliver-from organization on all open sales orders from the old org to the new org
6) Open work orders in the new organization. It would be best to complete existing work orders in the old
organization and then open new ones from the go-forward date in the new organization if this is feasible.
7) Financially close the old organization .
The main benefit of switching from standard to average costing is that you no longer have to
update your costs -- the system does it for you based on transactions.
The disadvantage of switching to average costing is that you must now monitor your cost
transactions to ensure that any 'stuck' transactions are promptly cleared. The cost processer
will cost transactions in date/time sequence, so if a transaction fails,
it will prevent any later transactions from being costed. Uncosted transactions
cannot be passed to the general ledger, which means you cannot close month-end.
Regards,
William.
-
vinothbharathi
- Posts: 7
- Joined: Fri Oct 31, 2008 4:41 am
- Location: India
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