At this time of the year I usually find my phone and email box stuffed with questions on costing….. How does pcMRP cost materials, how does pcMRP keep track of average costs, how does pcMRP charge jobs with appropriate costs etc. etc.!
In order to fully understand what seems to be a simple question, one has to be totally familiar with standard costing and average costing methods. I’ve gotten into a fair amount of conversations regarding this issue, and, while many of the people that I talk with have their own ideas about how costs are handled, there truly is only one way to look at them.
Standard cost is the cost that you set based upon the best knowledge that you have about the costs of that part. Once the standard cost is set for the period (IE: YEAR 2015) that standard is locked and all new introductions of inventory are measured against that standard (IE: PPV, MPV, etc). As you receive materials into your inventory, whether they are higher or lower than standard, those differences are taken to your PPV and MPV accounts, and the materials are used at standard. This is my preferred method of manufacturing cost accounting.
Average cost continues to calculate each time material is introduced into your inventory by receipt from a vendor or other introductions of inventory. It is the average cost of your material on hand. If you have 1 EA Part #123 on hand at the current average of $1.00 and you receive one more at $1.10 the average cost of these parts would now reflect $1.05 EA. If the part was to be used at this time its cost would reflect the usage of $1.05.
There always seems to be 1000’s of things to keep your arms wrapped around when dealing with the manufacturing cost issue, but this is one that requires continual focus and monitoring. We would love to help you out in your understanding of these important system issues, and can point you in the right direction when using pcMRP as your manufacturing system. Give us a call today!