Cost Price vs. Purchase Price

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Posted on by Rosey

Hi All,

I have a quick question regarding cost price vs. purchase price on raw materials. You would think they would be the same. See my image below, the cost price and purchase price are different. On a production order the estimated costs use the cost price, and the realized costs use the purchase price. Can anyone tell me the reason for this? Also you can see that I have the latest purchase price checked but not the latest cost price checked, what exactly do those check boxes do? (FYI we use weighted average costing.)

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Hi Rosey,

Using weighted average cost model, your inventory physical cost updated when you receive raw materials on a purchase order. Your inventory financial cost will be updated when you invoice that purchase order. The realized cost for your production is not using the purchase price field on the fasttab of the item master, but the running average "cost" of your on-hand inventory.

The manage cost fasttab "cost price" may be used for BOM calculations - you are correct. In calculation groups, you may specify how the system calculates and estimates production orders from the BOM. You can point the system to use the "cost price" on the manage cost fasttab - item cost, or alternatively you can point the system to use "inventory price" - which is your running average "cost" of your on-hand inventory.

Latest purchase price - if you have this checked, then the system will update price field in purchase fasttab with the most recent purchase order for the product excluding discounts and misc charges

Latest cost price - if you have this checked, then the system will update price field in manage costs fasttab with the most recent receipt of an inventory journal

Hope this helps

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Rosey on at

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Hi,

Thanks for the helpful reply, but I am still stuck on why the realized cost and estimated costs would be different, if we are taking the inventory cost (running average cost) into account - why are these numbers different if the consumed amount is the same as estimated? As you can see from the image below (left most column is realized and just to the right?

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If you want a running average cost, then you need to use Moving Average as your inventory costing method.

Weighted average costing adjusts the inventory cost to a weighted average for the fiscal period when you run the Inventory Closing and adjustment process at month end (or run the Inventory recalculation during the month).

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Rosey on at

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I am not looking for running average cost, I am just saying that that is what the estimation is using until we run inventory close because we use weighted average.

I am simply wondering why the estimated cost is different than the realized cost on my production order?? I consumed the material immediately after creating/estimating the production order without any other transactions taking place in the meantime (since I was doing this in a test environment). The realized quantity is exactly the same as the estimated quantity.

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Rosey,

Do you have any indirect costs setup via the costing sheet? They could contribute to your realized costs being different than your estimated.

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Rosey on at

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I do, but these costs are applied on a separate line - the surcharge line. I am looking at the raw material costs line by line, not the total cost of the finished good, and the realized costs are different than the estimated costs. See how the last two columns below have different values for some of the items--I just don't understand why this would be happening.

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Weaveriski 23,618 Moderator on at

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What are you basing you cost estimates on compared to the actual cost of the realized item would be my question. Estimation can be set to look at different elements.

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Rosey,

Would you be able to share the header of this table?

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Rosey on at

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See below...I highlighted one of the raw material lines that has a difference between estimated and realized cost.

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When you ran inventory close, do you see settlements for the PR-040488 component that references this particular production order? For weighted average cost model, settlements will match and adjust any variances between receipt and issue. If there were any differences between the product receipt and invoice of the corresponding PO of the raw material, this could possible contribute to the difference between estimated and realized cost of your production order

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