Under standard costing, predetermined costs are used for valuing inventory and for charging material, resource, overhead, period close, and job close and schedule complete transactions. Differences between standard costs and actual costs are recorded as variances.
Use standard costing for performance measurement and cost control. Manufacturing industries typically use standard costing. Standard costing enables you to:
Establish and maintain standard costs
Define cost elements for product costing
Value inventory and WIP balances
Perform extensive cost simulations using unlimited cost types
Determine profit margin using expected product costs
Update standard costs from any cost type
Revalue on-hand inventories, intransit inventory, and discrete WIP jobs when updating costs
Record variances against expected product costs
Measure your organization's performance based on predefined product costs
If you use Inventory without WIP, you can define your item costs once for each item (in the cost master organization) and share those costs with other organizations. If you share standard costs across multiple organizations, all reports, inquiries, and processes use those costs. You are not required to enter duplicate costs.
The cost master organization can be a manufacturing organization that uses WIP or Bills of Material. No organization sharing costs with the cost master organization can use Bills of Material.