Computation of Material Cost:
1. Standards
for Raw material costs will have to be set up in the system based on the
existing process being followed. Once the system is in use, Standard costs can
be set on the basis of Actual Costs. Variance will be calculated based on these
standard costs.
2. Actual
costs for ingredients (Raw materials) will be computed at period end based on
the following transactions:
·
Purchase Orders and Supplier Invoices
·
Material issues from inventory
·
Material receipts in inventory
·
Material transfers/adjustments etc.
3. Raw
materials as well as finished goods will be valued based on Period Moving
Average Cost (PMAC). It is the most accurate method of inventory valuation
which takes into account previous month’s closing inventory value along with
current month’s inventory transactions.
GAP: In OPM
Costing, simple moving average cannot be used for inventory valuation. It can
be done only at the period end after taking into account all the inventory
transactions for the period.