Those of you on standard costing: do you have a procedure for annual revaluation of quantities on hand and WIP at updated cost? I know what tools are used, but do you actually have a written procedure for what documents to capture, and how WIP is handled as far as revaluation? Please share!
Best,
…Monty.
Monty Wilson
Black Horse LLC
Houston TX
832-399-4643
WIP doesn’t get revalued… BUT any receipts of WIP to stock will happen at the new standard.
ie…
Dear Tim,
For standard cost companies, the cost revaluation is usually an annual event; this will be the case for my company once we’re on standard costing. However, our accountants have noticed that there isn’t a revaluation tool as some systems have, to summarize the before-and-after cost numbers (for both inventory and WIP) and an action to make those changes take effect immediately which would include revaluing WIP at all the new costs. They have told us that this is a common need in business, and since Epicor appears not to have the tools and procedures in a way convenient for them to access, I wanted to put the question out to companies actually using standard costing in Epicor, as to what their procedures are for capturing and recording, and in the case of WIP, how the revalue is even possible. So far none of them have replied to the thread.
Can you think of any action short of receiving WIP into stock, that would give us the variances when we need them? In other words, a procedure that would cause Epicor to revalue WIP so we could collect the records for our auditors? Some jobs may sit in process far longer than a month close or even an annual close.
Thanks much for your reply.
…Monty.
Hey Monty,
I have worked in companies that are standard cost. At year end, you do not revalue jobs that are still open. I have never revalued WIP.
As far as inventory, I always run a pre and post roll stock status report. I alaso save a pre and post copy of the database.
@Kenadian Thanks Ken for your reply. This has been our understanding from an Epicor perspective, and I appreciate your feedback on it. If anyone at a standard-cost company has had a requirement for revaluing WIP at the time of stock roll rather than waiting until the job is complete and can be received to Finished Goods for shipment, perhaps many weeks later, we would be interested to hear how that requirement was fulfilled in an Epicor system.
Best,
.Monty.
Hey Monty,
This isn’t just an Epicor issue. I have worked wit ha few ERP systems and none do this. WIP is not physical. Do you revalue parts issued but not yet worked on or do you revalue a part that is now something different because it has had work done to it? How is a system supposed to know the difference? In the same way, WIP is not counted during a physical inventory.
Not to mention that the WIP - and the job - was created with an assumption of a certain cost and should be measured against the original metrics.
Thanks again, Ken. Yes, this is what Leigh and Tim at Epicor explained to us; that WIP costs are maintained at their accumulated value and Epicor never revalues them in a standard cost system.
For example, a widget is in work and has been sitting in an “on hold” status in the shop for some reason. It has had material issued to it that’s worth $600 at the old standard cost and labor/burden that’s worth $800 at the old standard cost. When the annual revaluation occurs, these amounts would increase to $700 and $880 respectively. When the job is completed, if it’s received to stock without anything further being charged to it, its cost in stock would be the new standard cost of the Method which should be $1580. And that PartTran would show an MFG-VAR transaction for the difference, $180, at that time. The finance people speaking with me here have inquired whether there’s any way to record that variance at the time of annual revaluation, rather than waiting until someday when the job is received to stock. This is an oversimplified example of the “need” I’ve heard from the Finance side, and what I’m requesting is input from companies where such a need has arisen.
Also it’s our understanding that if shipped directly from the job to the customer MFG-CUS rather than received into Finished Goods stock, then no variance would ever be recognized.
Best,
.Monty.
That is correct about the ship direct. The MFG-VAR transaction is only going to occur on items going to stock.
In a standard cost environment, I don’t know how you will ever get around VAR transactions…either MFG-VAR or PUR-VAR. The variance is against the finished good when it is received to stock.
Again, in the year end scenario, to handle the variance before the receipt is difficult. What part of the variance is based on the material cost change or labor cost change and what is attributed to mfg inefficiencies.
There really is no way to accomplish what they are asking for.
This would need to be tested, just thinking out loud here.
Thinking about material only here, if you ran a BAQ of the component parts in WIP on open jobs, you might be able to get a value difference between what is left in WIP an that same quantity at the new standard. This would be your adjustment amount. From here, MAYBE you could do a Job Adjustment so the cost changes are tied to a different reason code and/or GL account.
Just a thought…
Mark W.
Don’t you get a MFG-VAR when a STD costed assembly is received into stock, when less than the assy’s cost was issued to the job?
For example (all cost methods are STD):
Wouldn’t that MFG-VAR tran of $10 be required?
I ask this as it seems that Monty’s company appears to be against MFG-VAR trans, which are a nature of the beast.
EDIT: I used part qty as the example, but variable labor costs (hours of labor, not the cost per hour) should do the same thing.
Thanks one and all! @ckrusen Calvin and @Kenadian Ken, it’s not that we don’t want the variance transactions; they are an essential part of the revaluation. However, it is our Finance personnel’s understanding that there should be a way of recognizing those variances at the time of the revaluation instead of waiting until later when the finished item is received into stock, or forever in the case of an item that’s shipped directly from a job to a customer, in which case it would never be recognized.
@Mark_Wonsil Mark, that reporting tool you are proposing might just be the workaround we’ll need, if no “revaluate WIP” feature can be made available.
Best,
…Monty.
I understand your problem - that being that Finance wants it done differently.
The costs in WIP are just that, costs.
1.1 What account would receive the offsett of a change in WIP value?
1.2 These hits to WIP need to be tied to specific jobs, so their “new costs” eventually flow through the system, else you’ll have orphaned costs in the WIP GL Acct.
If you could run a report and tell them what the eventual MVG-VAR for a job will be, what would they do with that?
2.1 Accrue an offsetting cost between the Cost Adj Acct and the MFG-VAR acct? That would just end up getting reversed when the job was finally received to stock.
2.2 What would they do with that diff for a direct ship job? It won’t make a MFG-VAR when it ships. It’ll just have a different hit to COS.
Thanks again everyone for your input! What we’re researching is the USGAAP requirement that a company regularly revaluate Inventory to lesser of cost or market value, where “Inventory” means raw materials, WIP and finished goods. We’re discussing options internally.
Best,
,Monty.
“In theory”, you could create a query/dashboard/report that would match up the open issued materials to the new standard cost… and then show the amount of change.
For example: Part ABC cost WAS $1.22, changes to $1.33… looking at Open WIP, you should be able to see how many were issued at the $1.22 cost, and compare that to the new cost. It becomes a little more difficult for Labor.
Another “Costing” feature that is Rarely used is the fact that Epicor allows you to create MULTIPLE cost tables. You could create one called “2017 - Historical”, “2016 - Historical” etc… each year, when you are done with the building of the cost, you also create a new cost ID for the new year, and copy the current cost (Typically cost ID = 1) into the historical version.
THEN you can create reports to compare year over year costs for inventory, jobs, even compare what COGS was vs would have been using the new costs… (The report would need to ask “Which Cost tables” to use).
This points back to a more “old school” way of handling cost tables, but Epicor 10 still has the underpinnings of those old designs still embedded in the database, and they can still be used.
Hi Monty,
Just wondering if you ever found a solution to this. Our company is going from Lot FIFO costing to Standard Costing this weekend and looking to revalue our WIP as well when we do this update. Any insight you might have would be appreciated.
Thank you,
Rebecca