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Hello,
Does anyone have any experience of FIFO costing in a manufacturing environment?
Katie
*This post is locked for comments
Do you have a specific problem or issue?
Corey
Yes, more common now than it was.
In principle are fine with FIFO costing but we'd really like to talk to someone who has experience of doing this. Everyone we have spoken to has preferred std costing. We are manufacturing in a batch controlled environment. Would anyone have time for a chat about FIFO costing and its implications?
If you are in a batch controlled environment you ensure the dimension group is configured to record financial stock at the batch level. In this way the system takes the current average cost of the item at sale or consumption and when the inventory close is run (which can be daily) it will update the transactions with the known batch cost. I would recommend you talk to your partner about it. The last few manufacturing implementations I have done have gone FIFO due to the moving nature of the costs and the increasing Variances and maintenance standard costing required, but this is down to each business and a discussion on teh pro's and cons of each.
Thank you for your message. Our implementation partner is working through the process with us and we understand how it should work, but there is some nervousness due to a bad experience with our previous attempt at rolled up costing in our legacy system. Really we would like to talk to a reference site to see what issues they have had, but our implementation partner has so far been unable to turn one up for us. Reassuring to hear you have worked on this for other people!
Hi Kate
The best option with the experience and nervousness is to do a proof of concept. Get your partner to create a set of data of your requirements with costs set. Then you define scenarios. In a joint session teh partner runs through your processes and explains what happens at each step. In this way both parties are confident the right decision has been made for the business and can carry on with it, or reassess it. To be honest in some ways even better than a reference site because you see your processes and your costs reflected in the costing method with the expected output.
I have only just seen this thread: I endorse Weaveski's comments, which you have probably acted on with your Partner.
The main reason for the preference for Standard Costing, at least for finished products, is simply that it gives a fixed base for comparison of cost of manufacture and cost of sale.
For AX2009/AX2012 Standard Costing can report on Production cost variances from Standard in considerable detail, identifying where and why (lot size, material quantity) the variance has occurred.
With FIFO costing you can still report on the difference from a notional standard, but you will not see the variances reported in such a structured way.
With FIFO, the cost of sale for the same product may be different for two batches that are otherwise identical in every way, and the fact that a batch cost can go on changing as often as a Recalc or Close is run until every component cost has been fully settled makes life difficult for anyone analysing the sales profitablity of specific markets or customers.
FIFO costing has benefits of its own, responding automatically to changing input costs, and ultimately showing the exact cost setlements from which the FIFO cost has been derived. If these features are important then FIFO is a good choice.
À la perchoine
Roger Lainé (Donkey)
Hi Roger, its good to see the difference between std vs FIFO and actually I have a question, perhaps I didn't know the significance of this when I define an item purchase or cost price. I would like to know how it relate to the "standard cost type" that we define in the costing version for an item,
Here is how I typically set up the item price, BoM calculation.
Costing version of 'standard cost type' is used to define cost price of raw material
cost category for route operation and resources to absorb direct manufacturing cost related to labor
indirect for overheads as defined in costing sheet
Active costing version contains the item price, cost category for manufacturing cost and indirect labor (used in conjunction with costing sheet).
if I apply FIFO to raw material, what impact I would see as supposed to Std inventory model - does it affect the way the BoM price is calculated? Will it not calculate the PPV or production cost variance?
Many thanks for your response
it looks like I can have 'FIFO' on raw materials while I can maintain 'std cost' for Finished Good. if that be the case, is there any consideration from parameters perspective and also from costing versions etc.,
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