Calculations

This section identifies the basic calculations used for Inventory Accounting transactions.  All calculations use accounting costs.  For information about how these costs are determined, please refer to the Accounting Standard Costs key concept.  Additional detail about these calculations is provided in the Inventory Accounting Program Documentation Manual.

In general, a transaction's value is the actual quantity recorded times the accounting standard rate for that quantity.  For example, in valuing a material issue, the actual amount  issued is multiplied by the accounting standard cost for that item.  For material issues (and other inventory transactions), the actual quantities are recorded in the Inventory Control module.  For shop floor transactions (such as direct labor and scrap), the actual quantities are recorded in the Shop Floor Control module (for MRP parts) or the Just-in-Time module (for JIT parts). 

If the Shop Floor Control and JIT modules are not installed, transactions are valued based on accounting standard costs per item.  For example, the labor associated with a manufacturing order (or JIT production quantity) would be recorded as the quantity received times the accounting standard labor cost for the item.  When Shop Floor Control (or Just-in-Time) is installed, the labor would be valued as actual hours reported times the accounting labor rate  The difference between the actual labor required for the manufacturing order and the standard labor amount would be calculated and recorded as a variance.  Note that variances are only calculated when Shop Floor Control (or Just-in-Time) is installed.

Related

• Value of Inventory
• Miscellaneous Costs
• Cost of Direct Labor
• Cost of Overhead
• Standard Cost Change
• Variances