Opinion on Costing Method for Raw Material and Finish Goods

[Muhammad Rizwan Anwar]

Hi community,

I need opinion on using costing methods for manufacturing business ( using idempiere lite production). Our business purchase several Raw Materials and produce some Finished Goods. Will iDempiere support combination of PO Average (raw material purchases) and Standard Costing (production) in right way for accounting purpose? Or should I use only Standard Costing Method for all type of product categories?

Please guide me.

Thank you

[Zeeshan Hasan]

For average costing to work, you have to ensure that there are never any negative inventories anywhere.
This is not always possible in many business environments.

[Muhammad Rizwan Anwar]

Zeeshan Hasan

Thank you for your guideline. Obviously we will try not to face negative inventories. 

Did you ever use lite production in iDempiere? I want to ask if i use PO Average cost for raw material and Standard cost for production goods (as lite production only support standard cost if i am not wrong), will system account for all transaction(costs) properly? or i would need to adjust costs of finish goods?

Please guide me as my customer wants to run production in iDempiere.

Thank you

Rizwan Anwar

[azzam othman]

Salamo Alaykom Rizwan,

In Manufacturing you need to use one costing method only . Either Standard or Average PO. Both are proved methods in accounts. Using which method depends on the factory environment . Standard method can be used if you cannot calculate the actual cost of the raw materials that produce the finished goods.

If you can find the cost of the raw material for every finished good, then use Average PO. An example for this case : open a job for one type of finished good only. If you can produce the whole quantity of this finished good at a time, then the Average PO is suitable. All the raw material cost transferred to that job can be divided over all finished goods quantity.

I hope this helps.

Best Regards,

[Carlos Collazos]

Hi Rizwan,

Let me know if I am wrong. Sometime ago reading a thread from Redone I understood that for manufacturing you can use only standard costing. Redone had the idea of adding Average costing to manufacturing but AFAIK this did not happen.

Did you manage to use Average costing in manufacturing?

---------------------------------
Carlos Collazos
coll...@gmail.com
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[redhuan d. oon]

Hi, no, i did not do anything new in accounting. Also, I am not an accountant so i follow what other accountants say. One told me that in Manufacturing there is only Std Accting. But i suspect other accountings are used just outside the manufacturing domain i.e. for purchasing or selling of the finished goods. It would be good if someone can confirm how they are using it.

On Thursday, 21 January 2016 03:28:29 UTC+8, carlos wrote:

Hi Rizwan,

Let me know if I am wrong. Sometime ago reading a thread from Redone I understood that for manufacturing you can use only standard costing. Redone had the idea of adding Average costing to manufacturing but AFAIK this did not happen.

Did you manage to use Average costing in manufacturing?

---------------------------------
Carlos Collazos
coll...@gmail.com
----------------------------------

On Wed, Jan 20, 2016 at 3:12 PM, azzam othman <azzam...@gmail.com> wrote:

Salamo Alaykom Rizwan,

In Manufacturing you need to use one costing method only . Either Standard or Average PO. Both are proved methods in accounts. Using which method depends on the factory environment . Standard method can be used if you cannot calculate the actual cost of the raw materials that produce the finished goods.

If you can find the cost of the raw material for every finished good, then use Average PO. An example for this case : open a job for one type of finished good only. If you can produce the whole quantity of this finished good at a time, then the Average PO is suitable. All the raw material cost transferred to that job can be divided over all finished goods quantity.

I hope this helps.

Best Regards,

On Wednesday, January 20, 2016 at 6:32:15 PM UTC+4, Muhammad Rizwan Anwar wrote:

Zeeshan Hasan

Thank you for your guideline. Obviously we will try not to face negative inventories. 

Did you ever use lite production in iDempiere? I want to ask if i use PO Average cost for raw material and Standard cost for production goods (as lite production only support standard cost if i am not wrong), will system account for all transaction(costs) properly? or i would need to adjust costs of finish goods?

Please guide me as my customer wants to run production in iDempiere.

Thank you

Rizwan Anwar

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