Inventory: Standard Cost vs. Current Cost

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I'm having trouble finding a concise answer to the difference between standard cost and current cost. How are each calculated in Great Plains?

Thanks in advance for any help.

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L Vail 65,271 on at

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RE: Inventory: Standard Cost vs. Current Cost

Hi Don,

Gosh, seems like we all have an opinion here. I like black and white. I like Mark's answer, but if I were learning this anew the phrase 'generally used with Perpetual inventory methods' would make me crazy.

Here's my answer as an adjustment (meaning copy) of Mark's answer.

Current Cost = The last cost that was used to record an increase in inventory quantity. This could be through an adjustment, receipt or variance, but not a return. If you are using the Average Perpetual inventory costing method, then the current cost is calculated as the average cost, like Mark explained.

Standard Cost = This is a cost that YOU enter (Like Richard said). The only way this cost changes is if you open up the item card and change it, or use the year-end close routine to update all of the standard cost items to equal their current cost (as described above).

Kind regards,

Leslie

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Richard Whaley 25,195 on at

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RE: Inventory: Standard Cost vs. Current Cost

Mark is basically correct but let's get more specific.

Standard Cost -- YOU set a standard cost for each item. This is a projected average of what you expect each item to cost over the next few months. Most companies revise standard cost every 6 months, a few more frequently, some once a year. When you actually purchase or manufacture an item, the difference between the real cost and the standard is written to a set of Variance Accounts. The item is debited to inventory assets at the establihed Standard Cost. When the item is consumed (sold, used, scrapped) it is always consumed at standard. If the standard cost is changed, you must make sure that an entry is made to a standard cost revaluation account for the value of the changes.

There are actually 5 valuation methods in GP, two of which are Standard but use LIFO or FIFO. LIFO/FIFO Perpetual is a form of average costing that add items to inventory at the cost purchased. And builds a stack. Items are removed close to the cost received, depending on the selection of FIFO or LIFO.

Average actually adds the cost of the quantity received to the cost of the quantity on hand and divides by the total quantity after the receipt to calculate a Current Cost.

Now, this is actually an abreviated discussion. We have a book, Managing Inventory, that explains these valuation methods in much more detail. Check it out on our web site.

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mpolino on at

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RE: Inventory: Standard Cost vs. Current Cost

Current Cost = Last amount paid for an item. Unless you are using average costing then it is the current average cost. This is generally used with Perpetual inventory methods.

Standard Cost = The standard cost for this item. Standard cost is generally fixed for a period of time (usually a year). Differences between standard and actual cost collect in an inventory variance account in the GL. This is generally used with Periodic inventory methods.

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