Best Costing Method for Manufacturing

Hello Everyone. I’m looking for some advice. Our company has been using Nav 5.0 for nearly 3 years. We are a contract manufacturing company that makes a wide variety of products. Many of your Sales Orders with our customers span several years so, as a result, we often times have raw material coming in on several purchase orders with different prices.

Originally our Nav Parter had us set everything up with a Costing Method of Standard. I believe this was done due to some problem with the Planning Worksheet not working correctly unless Standard was used. However, now this method is killing us. It is constantly dumping values into Variance accounts and we can never tell if we are making or losing money on an assembly unless we research it exaustively.

So, does anyone have any recommendations for the best Costing Method for a Manufacturing Company like ours? I do no not want to lose the functionallity of the Planning Worksheet if possible.

Thanks

Costing method is company’s accounting policy, and NAV can handle all methods equally well.

Standard Costing is recommended for manufacturing companies. The frequency to update the standard cost of items should be decided with consideration of all factors.

A NAV experienced finance consultant can be of help to you.

Cheers!

Hello Barryw,

it’s off course a difficult situation. If you want to change you’re costing method from standard to fifo it’s not quit that simple. The recommendations of MS is that for manufacturering the costing methode of standard is used. Changing it to fifo or to average that also has it’s downsides. Consider to change very carefully.

There is no hard fast rule that says manufacturing = standard. I am not sure Microsoft would back this up in a written statement. Whilst “traditionally” manufactruing companies would use standard and set these for the year and cost account variances I have implemented many manufacturing companies that have not used stadnard. The question in case here whilst utilising manufacturing is actually more like project, the length and term of these projects would seem to make standard costing fairly redundant if they remain static for the year.

That said the accountant of the business should be driving this. They should understand the reporting requirements of the business financially and decide upon the best costing method for the business, then implment a system in this manner.

I didn’t say that it is a fast rule, when you read the manual of manufacturering costing they indeed do not advice it. They write “Typically, manufacturing companies choose a valuation base of standard cost” A lot of functions and value posting rules in the manufactering module asume that the default costing methode of the item is standard. Look in CU22, why use the unit cost of the item card or the unit cost of the sku when my costing methode is FIFO.

for the rest i fully agree with you’re last statement.

Thanks to all of you that posted on this. Unfortunately there doesn’t seem to be an easy solution. If we continue using Standard Costing we will have no way of easily determining how and if each job is profiting without sorting through extreme amounts of variance entries. On the other hand if we try to change the valuation to someting other than standard then we will have to re-create each part number.

What if we were to change the raw material to have a tracking method of “Lot to Lot”? Would that effect how Nav handles the value?

Thanks,

Barry

Hi Barry

No changing the item for lot to lot has no impact, the item is standard costed, and therefore the standard cost is used.

Thanks, I was afraid of that.