Standard Costing setup in NS – knowledgebase JJ

Jira code :- Misc 300

This article contains the method to set up the standard costing in a NetSuite account. Using Standard Costing, you can maintain standard costs across cost categories for an item. Standard Costing method is available to be used with inventory and assembly items.

Note:If the Multi-Location Inventory feature is not already enabled, you must enable it to use Standard Costing.

Go to Setup > Company > Setup Tasks > Enable Features.
Click the Items & Inventory subtab.
Verify that the Inventory box is checked.
Check the Standard Costing box.
Click Save.

After the feature is enabled, NetSuite automatically creates a default cost category. This category is used by default for all new inventory, assembly, and service item records you create.

Standard costing workflow:

Enable the Standard Costing feature.
Create Cost Categories.
Configure Item Records.
Define Cost Versions.
Set up Standard Costs.
Rollup standard costs to calculate the total cost of assemblies.
Revalue inventory and update standard costs.

Cost Category:- Cost category records are used to classify different types of costs associated with your items. Using cost categories helps you to track costs and variances in the manufacturing workflow. After the cost category records are created, you can then assign a cost category to each item and material you use.Cost categories can be specified on each item record.

To create a cost category:

Go to Setup > Accounting > Setup Tasks > Accounting Lists > New.
Click Cost Category.
Enter a name for the category.
In the Cost Type field, select one of the following:
- Landed :- The Landed shows only if you have enabled the Landed Cost feature.
- Material
- Service
In the Expense Account field, select the appropriate default expense account to be used as a clearing account for the landed cost of items. Then, when the item is sold, the cost of goods sold is accurately reflected.

The Expense Category field only shows on a cost category record when you select Landed in the Cost Type field. An expense account cannot be associated with a Material or Service type cost category.

If you prefer not to associate a landed cost category with a Cost Of Goods Sold (COGS) account, the landed cost category account is intended as a holding account.

When landed cost is allocated, it posts to two accounts:

The asset account of the item
The landed cost category account

That posting is balanced out by a purchase line, either on the same bill or another purchase transaction, such as a shipping bill. The costing is accounted for in the COGS account of the item after the item is sold.

Item Record :- 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. For service items and inventory items, you can assign a cost category to help identify variances

To set up an item record for standard costing:

Go to Lists > Accounting > Items > New.
Click Edit next to the item record.
On the Purchasing/Inventory subtab, select the Standard costing method.
Note : The costing method cannot be changed after the record is saved.
Set the cost category.
Cost categories you have created appear in the list.
Enter a cost in the Standard Cost field. You can enter a cost per location. The value in this field can be used as the default when you create a planned standard cost record.
To streamline data entry for setting up standard costs, you can also import values into this field using CSV import.
In the Purchase Price Variance Account field, choose the account to post a variance to when a purchase transaction calculates a cost variance.
In the Gain/Loss Account field, choose the account to post a variance to when an inventory transfer calculates a cost variance.
On assembly item records, complete the following:
1. In the Production Quantity Variance Account field, choose the account to post a variance to when the assembly cost is higher or lower than expected due to the number of items used in the assembly build.
2. For example, a variance is created if a build costs more because you use 10 widgets when you normally use 8.
3. In the Production Price Variance Account field, choose the account to post a variance to when the assembly cost is higher or lower than expected due to the expense of items used in the assembly build.
4. For example, a variance is created if a build costs more because you use widgets that cost $30 each when you normally pay $20.
5. In the Unbuild Variance Account field, choose the account to post a variance to when an unbuild transaction calculates a cost variance.
6. These fields show only on assembly item records.
Complete additional fields as necessary.
Click Save.

Cost Version:- After you have created cost category records and set up item records for standard costing, you need to create standard cost version records for your items. A standard cost version is a label to identify a time period or other identifying characteristic that you use to identify costs for items. Having various cost version records allow you to record the cost you expect to incur for an item at a particular time. Creating standard cost version records helps you track these variances. Each cost version stores a standard cost to be used on different occasions. You can use multiple cost versions per item to track expected costs over time.When you have a cost version for each quarter, you can track the specific expected cost for each quarter.

Cost versions are not limited to being based on quarters or time periods, they can identify any specifying information that you choose

To enter a cost version:

Go to Lists > Accounting > Standard Cost Versions > New.
Enter a name for this cost version. For example, enter Q1 2012.
If you are using NetSuite OneWorld, the cost version name must be unique per subsidiary. For example, Subsidiary US has a cost version named Version 1 Q1 2012. The Subsidiary UK can also have a cost version named Version 1 Q1 2012.
In the Location field, select one or more locations that this costing version is applicable to.
In the Inventory Standard Cost field, select one of the following to define how the standard cost of inventory items is automatically calculated:
- Average Cost – The average cost of the inventory
- Item Default – The cost set in the Standard Cost field on the item record. When the cost version uses the Item Default setting, NetSuite generates planned standard cost records based on the Standard Cost field on the Inventory subtab on the item record.
- Last Purchase Price – The calculated last purchase price. For details.
Click Save.

New Planned Standard Cost:- After you have created cost version records, you can set up a planned standard cost record for your cost versions. The planned standard cost is the record you use to specify the expected standard cost related to each cost version.

Using Standard Costing, you can compare the expected cost for an item with the actual cost incurred. To make this comparison, you need to define the expected cost for each cost version. This information is defined on planned standard cost records.

Planned standard cost records are a tool to map out your plan for expected expenses. Planned standard cost records are a draft to track the standard, or expected, cost of items you anticipate using in the future. The standard cost is a fixed amount that you plan for as an expense.

You can create and store any number of planned standard cost records to anticipate a variety of potential costing scenarios.

For example, you know a specific cost you expect to incur for an item on a particular date. You can enter a planned standard cost record to show the cost you expect for an item on specific future dates. You expect an item to cost $10 during January, but anticipate a rise in the cost to $20 during February. Your planned standard cost record plans for these cost fluctuations.

Creating New Planned Standard Cost Records

A new planned standard cost record can be created either manually or automatically.

Automatic standard cost records are created for assembly items when you run a cost rollup.
- Automatic standard cost records show costing data based on NetSuite calculations of component item costs.
- When an automatic standard cost record is generated, the new calculated costs will overwrite the previous manual data if a standard cost record has previously been entered manually for the item.
Manual standard cost records are created when you complete the steps below to enter costing data for an item by hand.

Best Practice: Creating planned cost records using import and Cost Rollup:- You can use import functions and the Standard Cost Rollup( This is used for assembly items) form to create planned cost records for the inventory items. When you process the rollup, it creates the revaluation and all the planned cost records for the inventory items.

To manually create a new planned standard cost record:

Go to Lists > Accounting > Planned Standard Costs > New.
Choose a Standard Cost Version.
Select a location. The location you choose determines the location where you can push this version to production and use it for standard costing calculations.
Select an item.
Select a Cost Category. This category defines how cost variances will be tracked.
In the Cost field, enter the standard cost for the item to be associated with the selected category. This is the fixed cost you expect to pay.
1. If the item you selected is not an assembly item, this is the cost of the item selected in the header.
2. If the item you selected is an assembly item, this is the cost of the component on this line.
If the item you selected is an assembly item, complete these fields:
1. Select a component.
2. Enter a quantity. This is the number of this component you expect to use in a build.
3. Enter a unit of measure.
Click Add.
Non-assembly items can have only one cost category associated with them.
For assembly items, you can associate multiple cost categories to track costs. If you select only one category, the entire standard cost of the item is tracked in that category.
Repeat these steps for each cost category you need to track for this assembly item.
Click Save.

To create new records:

Import the cost to the standard cost field on the item record using CSV Import or Web Services.
Create a cost version with Item Default selected as the inventory cost.
Run the cost rollup.
When you run the rollup, NetSuite creates all the planned standard costs for the inventory items. These are based on the item record value when the Update Inventory Cost box is checked on the item record.
Run a revaluation.

When you use the Standard Costing feature, transactions you enter in NetSuite include line-item data to process standard costing variances.

Please note the following:

The sum of the cost across cost categories for an item generates the total cost of an item.
Purchase price variances can post on any “more-on-hand” transactions, including purchase receipts and transfer order receipts.
When transactions are processed using Standard Costing, the item cost is valued at a per-cost category level for non-lot numbered and non-serial numbered items.
- For lot numbered items, inventory is valued at a per cost category, lot number combination.
- For serial numbered items, inventory is valued at a per cost category, serial number combination.

The following details ways transaction data is processed with Standard Costing enabled. The examples below refer to Item A, which has a standard cost of $3 and an actual cost of $5 on transactions. The resulting general ledger postings are shown in tables as below:

Standard Cost Rollup

The standard cost rollup helps maintain accurate costing data for assembly items by calculating the standard cost of assemblies. The cost of an assembly is determined based on current costs of member components.

The cost rollup process calculates the fixed cost based on data entered on the planned standard cost record. This allows the most accurate cost of each assembly component to be used in costing calculations.

For example, you want to know the cost of Assembly Item D. Assembly Item D is comprised of one each of Item A, Item B and Item C. The cost of each component is multiplied by the number used in the assembly, and the sum is totaled to find the current cost of the assembly.

When a cost rollup is performed, NetSuite examines planned standard cost records to find the following:

Item A = $5
Item B = $6
Item C = $7

Using this data, NetSuite calculates the cost of Item D as (5 + 6 + 7) = $18. After the cost is calculated, this information is stored. This enables you to track your expected cost of $18 for Assembly Item D.Note:- Calculations are performed with decimal precision to seven places.

In addition, cost calculations are performed for all parent component items. If an assembly has a component that is itself an assembly item, the same calculation is performed for the sub-assembly members as well. The cost calculations are performed all the way down to the lowest sub-assembly level and rolled up to find the cost of the parent assembly item.

A cost rollup is performed on an item only if that assembly has a cost category selected on the item record. Then, the calculated costs are broken out by components and cost categories.
The standard cost of all assemblies are calculated regardless of whether its components items use actual, average, or standard costing.

To run a cost rollup:

Go to Lists > Accounting > Planned Standard Cost Rollup.
Select one or more Standard Cost Versions. Click the icon to open a multi-select popup window.
A list of items corresponding to the cost versions shows.
In the Effective Date field, enter the date you want the new standard cost to take effect. This defaults to the current date.
Check the Update Inventory Cost box to set the standard cost of all planned standard cost records of inventory items.
When this box is checked, the planned standard cost records of inventory items are created or updated based on the inventory costing method defined on the cost version. When the default item record selection is used on the cost version, the cost rollup process reflects the cost in the Standard Cost field on the item record for each item selected. Also, the planned standard cost of inventory items is automatically generated as part of the rollup process.
The next time you open this form, NetSuite checks or clears the box based on the previous use.
The Rollup Assemblies Based on Components preference enables you to select only the component and NetSuite creates inventory revaluation entries for all the higher-level assemblies. For example, you can introduce a new component for several existing assemblies, as shown:
- Assembly A, Subassembly B, Component C (new)
- Check the Rollup Assemblies Based on Components box and select component C on the form. When you submit the form, NetSuite finds all the associated assemblies within the entire bill of materials (BOM) tree and creates inventory revaluation transactions for the component and for the assemblies (A,B,C).
Check the Select box next to an item to include it in the cost rollup calculations. Clear the box next to an item to exclude it from calculations.
Check the All Items box to perform calculations for all items.
Click Submit to perform the calculations.

When you submit the form, the cost rollup calculations are performed and the planned standard cost record for all items and sub-items are updated or created. The list of these newly calculated planned standard cost records is displayed.

Revaluing Standard Cost Inventory

You can enter a transaction to revalue your standard cost inventory for each planned standard cost record. This revaluation process does the following:

Sets the standard cost for items as of the specified effective date
Calculates the current inventory value based on the current standard cost

Setting Current Standard Cost

First, the revaluation transaction sets the standard cost of an item.
This process identifies in the system which cost and cost category will be used on transactions for this item as of the effective date.
After the revaluation is performed, transactions entered use the newly established standard cost for items.
For example, the current cost on record for the item Assembly Widget A is $20. You have previously created a planned standard cost record for Widget A that is associated with cost version Q3 2011 and shows the standard cost of Widget A at $30. Now, you want to push that cost to production so it is used in costing calculations as of July 1, 2011. To do so, enter an inventory cost revaluation.

Calculating Inventory Value

An inventory cost revaluation transaction sets the value of on-hand inventory. This value is calculated as:

On-hand value = (standard cost * current quantity on hand)

Therefore, if the current standard cost of Item A is set at $30 and the on-hand count is 100 units, then the current value of Item A stock on hand is ($30 * 100) = $3000.

For assemblies, this is calculated as follows:

On-hand value per cost component = (component standard cost * current quantity on hand)

After the revaluation is performed, inventory values on records are current and more accurate.

When you enter an inventory revaluation, the result will be blank for any item with no quantity on hand.

Entering a Revaluation Transaction

You can process an inventory revaluation in two ways:

Bulk Revaluing Standard Cost Inventory
Select an existing cost version record, and set the date those costs become effective. Do so for all items associated with the cost version or only for select ones.
Manually Enter an Inventory Cost Revaluation
Select an item, and enter standard costing details. Upon submitting, a cost version record is created, and these costs become effective as of the transaction date.

You can enter only one revaluation transaction per date for each item in a specified location.

Note: Calculations are performed with decimal precision to seven places. For example, 9.87654321 is calculated as 9.8765432.

To delete a revaluation:

Go to Transactions > Inventory > Revalue Inventory Cost > List.
Click Edit next to the revaluation you want to delete.
On the form, in the Actions list, select Delete.
If you prefer to have an audit trail instead of deleting, you can run the inventory cost revaluation again using the same parameters as the initial one.

Revaluation and Multi-Book Accounting

Important

For NetSuite OneWorld accounts that use Foreign Currency Management with the Multi-Book Accounting feature, the exchange rate on a transaction has no impact on standard cost items because the item cost is always derived from the inventory cost revaluation.

When using the Multi-Book Accounting feature, for inventory costing to calculate without errors, submit an inventory cost revaluation after each new book is created. This revaluation must have a transaction date equal to the effective date of the new book. Also, the standard costs for other books will be impacted by the inventory cost revaluation unless, before running the inventory cost revaluation, you ensure that other the exchange rates for other books are the same as rates on the date of the last inventory cost revaluation. These actions are required because each book has its own location standard cost for each standard cost item. The location standard cost must exist in each book in order for transactions being processed in each book to be able to post variances for that book. A single standard cost cannot be used across all books for posting purposes because each book might be in a different currency. When the inventory cost revaluation assigns a standard cost to an item, the exchange rate for the day is used to calculate the standard cost for books in different currencies. From that point forward, the daily exchange rate does not affect the standard cost in each book.

Bulk Revaluing Standard Cost Inventory

This bulk process enables you to create inventory revaluations for multiple items at one time. Standard costing data is retrieved from existing cost version records and does not need to be entered manually.

Standard costing data for assembly components is updated or created on cost version records as necessary.

To revalue standard cost inventory in bulk:

Go to Lists > Accounting > Revalue Standard Cost Inventory.
Select one or more Standard Cost Versions. Click the icon to open a multi-select popup window.
A list of items corresponding to the cost versions shows.
Select or enter the effective date. This is the date after which the price on the planned standard cost record is used for costing calculations.
Select an Adjustment Account. The inventory value variance amounts post to this account.
Check the Revalue Assemblies based on Components box to revalue all affected assemblies based on the component selected.
Upon submitting this form, NetSuite remembers your selection for this box. The next time you open this form, NetSuite checks or clears the box based on the previous use.
Check the box next to an item to include it in the cost rollup calculations. Clear the box next to an item to exclude it from calculations.
Check the All Items box to perform calculations for all items.
Click Submit to perform the calculations.

After you submit the form, all marked items have their inventory value calculated and the prices on the planned standard cost record are used on transactions going forward.