As prerequisites for running a standard cost conversion, perform the following steps.

  1. Enable multisite functionality, if not already enabled.

    Use the to enabled the multisite functionality because it is required to support standard cost functionality.

  2. Define an inventory model group for standard costs.

    Use the form to create an inventory model group with a standard cost inventory model. When setting up a standard cost conversion, you will assign this inventory model group to the items that are being converted.

  3. Assign a cost group to each item.

    • The cost group that is assigned to a purchased item can act as the basis for assigning ledger accounts that are related to standard costs, such as assigning ledger accounts for purchase price variances. In a manufacturing environment, the cost group that is assigned to purchased components also provides cost segmentation in the calculated costs of a manufactured item.

    • The cost group that is assigned to a manufactured item can act as the basis for assigning ledger accounts that are related to standard costs, such as assigning ledger accounts for production variances.

  4. Assign a standard order quantity to a manufactured item when it has constant costs.

    The standard order quantity for a manufactured item acts as an accounting lot size for amortizing (or prorating) constant costs, such as setup times in routing operations or a constant component quantity in a bill of material (BOM).

  5. Assign general ledger accounts that are related to standard costs, especially the revaluation variance.

    Use the form to assign general ledger accounts that are related to standard costs. As a minimum for the standard cost conversion process, you must assign the account for the revaluation variance for all items and all cost groups.

    Use the form to define the general ledger accounts that will be needed for standard costs.

    Use the form to enable the use of cost relations (for tables, groups, and all) before you define the inventory posting rules.

  6. Define the inventory parameters that are related to standard costs.

    Use the tab on the form to assign a number sequence to revaluation vouchers. A revaluation voucher is generated when the standard cost conversion results in a change of an item's inventory value.

    Use the form to define cost control parameters (on the tab) to define two parameters that are related to standard costs.

    • Use the field to select or . The selection of is termed an active cost breakdown. An active cost breakdown is critical for calculating, retaining, and viewing cost group segmentation across a multilevel product structure for standard cost items. When the cost breakdown is active, you can report and analyze inventory, work in process (WIP), and cost of goods sold (COGS) per cost group in a single level, multilevel, or total format. An active cost breakdown means that enabling a manufactured item's cost will result in storing the cost group segmentation within the item's cost record.

      The selection of none for the field means that cost group segmentation will not be maintained for standard cost items. That is, a manufactured item's standard cost will be calculated and maintained as a single amount without cost group segmentation, and the cost contributions of manufactured components will be aggregated into the single amount.

    • Use the field to select summarized or per cost group. The selection of per cost group enables you to identify purchase price variances and production variances by cost group, and also enables you to identify the four types of production variances (the lot size, quantity, price, and substitution variances). The selection of summarized means that you cannot identify variances by cost group, and you cannot identify the four types of production variances. You can only view a summarized production variance.

      The policy about variance to standard works independently of the cost breakdown policy. That is, you can select a cost breakdown policy of none, and select variances per cost group, so that production variances by cost group will still be captured.

See Also