Which Costing method to be used in Manufacturing industry.

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Dear Friends ,

Which costing method to be used in Manufacturing industry, One of my client is Using FIFO Method so the unit cost is not picking correctly.

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AJAnsari 5,754 on at

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Hi Srinandhat,

There is no hard and fast rule, but many manufacturers use Standard Cost for Finished Goods as it allows them to calculate / define a baseline of all costs associated with manufacturing (direct material costs, direct labor costs, subcontracting costs, and overhead costs), and periodically update this to account for either changing material costs and subcontracting costs, or to adjust for gains/losses in labor efficiency. Also, when Standard Cost is used, it is easy to track variances between actual costs for each of the aforementioned buckets against the Standard.

Purchased goods may still be handled using another costing method like FIFO, Average, LIFO or in some cases, Standard Cost as well.

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Alexander Ermakov 28,096 on at

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Actually, FIFO is not bad to be used. I personally like it more than Average one as it is more transparent for verification, especially if you have many shipments of the same item at variable costs. If you run the adjust cost batch job, it should always give you the correct figures.

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Community Member on at

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hi Alex,

But When iam using FIFO methodology . unit cost is not calculating correctly in (detailed calculation report ) it does not summing( cost of components +cost of production). same problem in item card also.

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Alexander Ermakov 28,096 on at

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What exactly is not calculated correctly? Can you provide a sample here?

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Community Member on at

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hi..

unit cost is not calculated in detailed calculation

For ex,

cost of components :150

cost of production :200

unit cost must be 350

but system is calculating unit cost as :150.. it is picking only cost of components in FIFO method..

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Andreas Panayiotou 34 on at

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https://msdn.microsoft.com/en-us/library/hh168058(v=nav.90).aspx

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Joshi Suresh 120 on at

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Hi, Srinandhat

Generally Manufacturing Industry used Standard Costing for Finished Goods, Standard cost will become the Cost of Goods Sold when the item is shipped, and any variances between the actual cost of an item and the standard cost will appear as a Purchase Price Variance on the Profit and Loss statement as a period expense. Standard costing requires significant upfront work on behalf of the cost accountants and production engineers to arrive at an accurate standard cost of an item.

Where as in Purchase goods i.e Raw Material, Packing Material etc. used FIFO

I hope it will be resolve your query

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