Standard Costing in 2023- Rolling Costs & Troubleshooting
Standard Costing in 2023- Rolling Costs & Troubleshooting
Reconciling The Change In Inventory Valuation
What To Look For After Completing A Standard Cost Rollover?
What To Do When The Cost Roll Does Not Work As Expected?
How To Prevent and Identify Cost Rollover Issues
What to do when the standard cost roll updates the standard costs with the wrong number?
Standard Costing in 2023- Rolling Costs & Troubleshooting- Conclusion
The 1st of the New Year is approaching quickly, which means only one thing for many cost accountants and manufacturers- time to switch or “roll over” standards to the latest version.
Goodbye, 2022- Hello, 2023!
While the rest of the world celebrates and relaxes, this is a nerve-racking part of the year; ensuring that the standard costs are calculated correctly, approved, and implemented across all systems and reporting tools is strenuous.
Making the challenge even more difficult is the fact that standard costs can typically only be changed once per month- this means you have exactly one shot at getting everything right. And typically doing this in the late hours of 1/1/2023.
Here are a few things to look for when rolling standard costs to the New Year.
Reconciling The Change In Inventory Valuation
Part of rolling standard costs involves reconciling the difference between the inventory quantities on hand at the new standard less the old standard.
When the changes are made to switch standards, the system will automatically perform this calculation down to the SKU (stock-keeping unit) level. However, Cost accounting professionals must also reperform this calculation to tie out to what the system generates.
Performing this analysis requires capturing the beginning inventory quantities and valuation accurately as close to the switchover time of 11:59:59 as possible. This report can be run earlier for some organizations, especially if the entire organization is off for the holiday. Still, some organizations have continuous manufacturing, and running the point-in-time report is necessary.
For the next step, once standard costs are updated, a second balance sheet report must be run to reflect the same quantities as the previous day but with the updated costs. If all goes well, the reconciliation should be pretty straightforward, and the calculated change in inventory valuation amount that hits the P&L should match the Excel calculation
Pro tip: It is critical to do the inventory revaluation reconciliation early before anyone begins their day and starts to move inventory. Once people begin production the next day, the reconciliation process becomes much more difficult.
Cost accounting professionals understand the difference between what “should happen” and what “does happen.” For those who have been in this field long enough, they know issues occur.
The following are all likely and will require troubleshooting:
· The standard costs did not update for all materials.
· The standard costs have been updated, but only for some locations/manufacturing plants but not others.
· The entire cost run failed to rollover to the New Year.
· The reconciliation of the inventory valuation does not match what the system produced.
What To Look For After Completing A Standard Cost Rollover?
Once you push the button to release the new standard costs or the scheduled job is processed, you will want to perform an analysis right away. As mentioned earlier, analyzing and fixing issues becomes much more manageable before manufacturing staff begin moving inventory around throughout the day.
Here are a few things to check for to ensure standard cost rollovers are complete and accurate:
· The standard cost for each material matches the input/upload file.
· The standard cost value is identical across all locations/manufacturing plants.
· The inventory revaluation calculated by the system matches the manual reconciliation.
· There are no red flags or issues generated from system status reports; those that occur are known and understood.
What To Do When The Cost Roll Does Not Work As Expected?
Every cost accountant has a story of when a standard cost rollover turned from routine to a nightmare scenario. The worst thing to do is panic or perhaps ignore the issues.
When there are issues, you want to ensure you can begin to identify the issues and document them to share with IT support staff or troubleshoot yourself otherwise.
Here, it helps very much to have your Excel files that support the standard cost expected values readily available and in a clean, shareable format that others can understand. Be ready to share these files so others can understand what your expectations were compared to the results that are being returned.
For each issue, take a look at the technical system settings to look for easy fixes- sometimes a box isn’t checked, or someone made a last-minute change they didn’t communicate. You will need to understand why some standard costs updated perfectly while others did not.
For issues that cannot be easily troubleshot, create a Word document and add screenshots describing each screenshot, explaining the issue. Share these with tech support when they are complete.
In addition, if standard costing issues cannot be understood or resolved in the early hours of 1/1/2023, then make sure you communicate to other members of the accounting team that you need a few extra eyes and hands to support the process. Again, communicating that you need this help beforehand is critcial to ensuring you can get the support if needed.
If the IT and accounting teams are dealing with the mother of all hangovers and can’t see straight in the morning, they won’t be much help.
How To Prevent and Identify Cost Rollover Issues
Preparation goes far in ensuring your cost run goes through without any issues. In the quiet days at the end of the year, use this time to perform test cost runs that will help flag any potential issues and errors.
Cost rollovers often have issues if the master data configurations are not perfect and up-to-date. When there are issues, compare the master data between the cost-run instances that are working with those that are not working.
Often, you will find easy fixes where certain boxes are mistakenly checked or unchecked in the ERP systems (SAP, NetSuite, JD Edwards, etc.). For issues that cannot be resolved, it is wise to pull in the appropriate IT support staff to help troubleshoot.
Doing this early and communicating expectations is critical here to ensure you have the support necessary to perform these tests and fix issues in time.
What to do when the standard cost roll updates the standard costs with the wrong number?
During the New Year standard cost rollover, getting the system to process the changes appropriately is just one component. This must be tested and analyzed early in preparation to ensure it goes right.
The other challenge many cost accountants can overlook is not having the standard costs updated to the correct number in the system. I’ve done this myself- I updated the New Year standard costs with a number that should not be there.
This is a real problem because, for most ERP systems, the standard cost roll transaction can only be performed once per period (or month). Yes, there are ways to delete a cost roll and redo it, but these require advanced permissions and can, with many warnings on how not doing this process correctly could wipe out data unintentionally.
To prevent this problem, the solution comes back to preparation. The product cost for each item should be understood, reviewed, and agreed upon by all stakeholders in the manufacturing organization.
Then, the cost accounting team will need to ensure the information, inputs, and calculations used to calculate the standard costs in Excel must be correctly uploaded into the ERP system.
Finally, the cost accounting team must validate that the system completely matches and reflects all the inputs required to produce the same standard cost results that were agreed to by the manufacturing stakeholders.
If there are disconnects between the new standard cost and what was expected, it is best to communicate these issues early and also explain why the disconnect has occurred and what is being done to fix the issue, and also ensure it doesn’t occur again in the future.
In many cases, the organization will opt to fix the issues the following month, with a notation for any unexpected variances that recur as a result. Here, it is critical to ensure the issue is actually fixed the following month and is not forgotten about or repeated.
Standard Costing in 2023- Rolling Costs & Troubleshooting- Conclusion
Standard costing might be considered a straightforward and simple process by many in the manufacturing organization outside of the cost accounting function.
However, those who live in this field know the area is a minefield where things can go very wrong very quickly. And as mentioned, these issues cannot be quietly corrected- they affect the entire manufacturing organization in very obvious and visible ways.
Putting in the time and preparation to anticipate issues and fix them early is the best remedy, but having additional support staff available is also key to troubleshooting and resolving issues shortly after New Year.
