Standard Costing in NetSuite

Standard Costing in NetSuite

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The Standard Costing feature in NetSuite enables manufacturers and wholesale distributors to identify and correct problems with inventory costing issues by giving insight into costing variances and their causes.

Using Standard Costing, you maintain standard costs across cost categories for an item. These standard costs identify the expenses you expect to incur for items over time. Keeping track of the expected cost lets you to compare that amount to the cost you incur for items. Then, you can analyze any variances between the standard (expected) cost and actual cost of items.

Standard Costing not only tells you that a variance occurs, but it also helps you understand why costs are different from what was expected. Variances might be caused by changes in how much you pay for the material or by changes in the quantity of material used.

  • Purchase price variances are generated in the procurement process.
  • Production quantity and cost variances are generated in the production process.
  • Unbuild variances are generated during the disassembly process.

Knowing the cause of the variance helps you identify opportunities to correct costing issues in your manufacturing and procurement processes and take action to improve on these areas in the future.

Standard costing workflow

  • Standard Costing method is available to be used with inventory and assembly items.
  • Cost categories are used to classify the type of inventory item. They enable you to categorize the different types of manufacturing variances. For use with Standard Costing, you can set up cost categories and assign them a cost type of material or service.
  • On item records, you can select Standard Cost as a costing method for assembly items and inventory items. When an item uses standard costing, variances are generated based on differences between the fixed cost and the actual cost of the item.
  • If you expect standard costs to change over time, or costs to vary based on location, you can establish multiple cost versions to reflect this.
  • For each cost version, you can enter the standard cost for inventory items in a planned standard cost record. This record stores the expected cost of inventory items. This expected standard cost is used to calculate variances from the actual cost of items.
  • The cost roll up calculates the total fixed cost of assembly and sub-assembly items based on data entered on the planned standard cost record. The planned standard cost record is sourced to find the cost of individual component items for assemblies. The cost of each member and sub-assembly is rolled up to calculate the total cost of the assembly.
  • Revaluing inventory updates the standard cost of items and identifies the date that cost becomes effective. Revaluation can be run in two ways:
    • As a bulk process using existing cost version records
    • Manually by entering new costing data by hand

    This process also runs an inventory revaluation. This process reviews your inventory and revalues it based on current standard cost changes.

  • When you enter transactions, variances general ledger lines post variance amounts to the appropriate accounts based on the differences between the actual cost and standard cost.
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