At our company we are currently reveiwing whether to move away from Standard Costing for BOM Items to Average Costing.
The main reason being the frequent changes in prices of our BOM components makes it a somewhat a daunting task to keep updating the standard cost.
Also there is a general time lag between receiving in invoicing of upto 1 month yet there are weekly price/unit cost changes on these items.
For those who have experience in both Average and Standard Costing what is the value in switching from Standard Costing to Average Costing? Or is this even a bad idea in the first place.
First and biggest problem is, that you can not change Costing method if you “have one or more ledger entry for this item” - if you had tried to change Costing method, you had already got this message yourself.
A workaround still exists, but even then you must have zero stock for Item in question, no pending POs & SOs etc etc, which unfortunately in real environment is next to impossible. Besides, this can’t be done with Client license, and can mess up all costing info for existing inventory
General practice is to create NEW Items, possible residuals from old ones then you can make negative/positive adjustments in Item Journal. If you have many such Items, it will be huge job, which must be completed in short time - overnight or in holidays.
I wouldn’t use average if you are using bom. Average has its headache with constantly being changed, and your entries being constantly readjusted (more entries). If you make any mistakes on one entry, all outbound costing entries will be screwed. I suggest to go with FIFO instead.