Costing Overview

This topic provides and overview of costing.

Companies design costing methods to support three processes:

  • Planning
  • Control
  • Decision making

The system supports you in developing, using, and optimizing costing conventions appropriate for your particular business and product lines.

Note: The decisions that you make in setting up your costing methods affect calculations throughout Inventory, Material Planning, Production, and Financials. We strongly recommend you set up your costing methods before processing any manufacturing transactions.

Because the system costing methods are set at the item level, you can use a variety of combinations of cost flow methods to manage different items in different ways. For example, you could use:

  • Average costing for purchased items and LIFO for manufactured items
  • Standard costing for inventory valuation and financial reporting, and FIFO for job costing.
  • Standard costing as the system default, but use Average costing for purchased items.
  • Specific costing for expensive items or items whose price fluctuates, but Standard for small items like nuts and bolts, which contribute little to the total cost of the product.
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