EnterpriseIQ supports a complete Standard Costing system, linking various inventory and financial transactions to specific General Ledger accounts.  The complete standard, perpetual inventory (explained below) costing system is activated in System Parameters by checking “Use Standard Cost during Post Transactions”.  Note that this setting is global.  The following is a discussion and examples of the standard cost system in EIQ.

Use Standard Cost during Post Transaction (flag)

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This flag specifies the method of how ending inventory is determined:  periodic (flag OFF) or perpetual (flag ON) inventory methods.  

The terms periodic and perpetual imply a time frame for determining the amount of ending inventory. Under the periodic method we periodically determine the amount of goods remaining in inventory where periodic is defined once every accounting period (usually at the end of the accounting period). When that number is determined it is used as the beginning inventory number for the next period. Thus, inventory balances are only determined periodically. The perpetual method provides estimates of ending inventory continuously. As items are purchased, manufactured or leave inventory and are sold inventory is updated to indicate the on hand unsold product. 

Periodic inventory systems 

Purchases are recorded to a purchase account but withdrawals are not recorded. Instead, physical counts of inventory are reported at the end of an accounting period and the inventory value is adjusted to that figure after adding in purchases.   Since withdrawals are not recorded, cost of goods sold must be computed at the end of the period after determining the Ending Inventory value: either by producing a physical inventory report or taking a physical count of inventory. 

The basic inventory equation is computed as follows: 

Beginning Inv. + Purchases - Ending Inv. = Cost of Goods Sold 

Perpetual inventory systems 

Purchases, production and withdrawals are made directly to inventory during the period.  A perpetual system records all additions (purchases & production) and withdrawals (cost of goods sold) so there is no need to compute cost of goods sold.

The following illustrates the accounting transaction differences between the two methods in EnterpriseIQ:

Other Production Variance examples (perpetual method):

The following examples use GL accounts specified in the Cost Elements form.  Note if a GL account is not specified for the cost element, the system will use the Production Variance account from the Systems Parameters/GL Setup tab.

1. Actual production hours are greater than standard:
   

Dr  Variable Overhead (5299)         $ XX.XX

Cr   Variable Overhead Offset (5297) $ XX.XX

1. Actual Raw Material usage exceeds standard:
   

Dr   Variable Raw Material (5030) $ XX.XX

Cr   Variable Offset Raw Material (1155) $ XX.XX

1. Actual Labor exceeds standard:
   

Dr   Variable Labor (5199) $ XX.XX

Cr   Variable Offset Labor (5197) $ XX.XX

The next example uses GL accounts specified in the Systems Parameters/GL Setup tab.

4)   Actual attached Manufactured* Components (i.e. WIP item attached as a component in the BOM) exceed standard:

Dr   Mfg Production Variance (5031) $ XX.XX

Cr   Mfg Item - Finished Goods Inventory (1150)** $ XX.XX

* - the Mfg Production Variance account is only used when the attached component is a manufactured item.  Stored within the inventory record is a field containing a manufacturing number - a BOM.  If this field is filled in, the item is a manufactured item.  If it is blank, then it is assumed the item is purchased.  Variances occurring with purchased items are accounted for the same as example 2 above.

** - this account may be overridden by assigning a different account (i.e. WIP Inventory) at the Inventory/Assign Inventory Account screen.

Final note on NOT using standard costing in EIQ (“Use Standard Cost during Post Transactions” is NOT checked):  although you may choose not to use the perpetual-based cost system, you may still utilize the standard cost ‘rollup” functionality within the system.  This functionality is available when the above parameter is not checked.  Accounting transactions for this environment are illustrated above.  Standard cost calculations and rollup essentially work the same with or without the parameter turned on.  As explained above, the cost of goods sold determination (when parameter is OFF) can be based on running a “standard cost” inventory report at the end of the period and performing the periodic-based inventory calculation:

Beginning Inv. + Purchases - Ending Inv. = Cost of Goods Sold