[Question] Adjusting Cost Price Differences in Pastel

[Krisray]

Hi
We are clothing manufacturers and always pre cost our products which includes labour and materials. Once we receive an order we will proceed with production.
We then track and record labour and material costs used for that specific product during production and there is usually a variation in the actual CP to the pre costed price. This is done on a separate programme.
At the time of invoicing accounts department have been using the pre costed price to create the product listing in Pastel.The cumulative difference between the two cost prices is significant. Of course salaries, wages and purchases are also captured in Pastel (V18)
How do we adjust to compensate for the difference in the two cost prices?

Many Thanks
Chris

[Andromeda]

Hi Krisray

If the standard cost generates a debit to cost of sales and credit to stock, it will mean that stock is overstated and cost of sales understated. Without getting too technical, usually a supplier invoice results in debit stock credit suppliers and your subsequent sales at standard cost credits stock and debits cost of sales. At month end you would normally adjust the variance, which is basically the actual cost less standard cost and results in debit cost of sales and credit stock.

[Krisray]

Thank you for your reply Andromeda.
I dont fully understand why there would be a credit to stock .
In our case the stock value is overstated as a higher "Costed CP" was applied , yet the Actual CP is much lower.

[Andromeda]

I will try to better explain. Assume you buy 1000 widgets from ABC Limited at R1 each. Later you sell 800 widgets to XYZ CC and the standard costing system accounts for the sale at only 90 cents each. From what I gather you are saying these are you entries and stock result:

Debit Stock 1000 at R1. R1000 Sales at actual
Credit Creditors 1000 at R1 (R1000) Sales at actual
Debit Debtors 800 at R1.50 R1200 Sales at actual
Credit Sales 800 at R1.50 (R1200) Sales at actual
Debit Cost of sales 800 at 0.80 (SC) R640 Cost of sales at SC
Credit Stock 800 at 0.80 (SC) (R640) Stock movement at SC

The resultant balances are:
Debtors Debit R1000 Correct
Sales Credit (R1000) Correct
Cost of sales Debit R640 Incorrect should be R800
Stock Debit R360 Incorrect should be R200

Required journal
Debit cost of sales 800 at 0.20 R160 The difference between actual and standard cost
Credit stock 800 at 0.20 (R160) The difference between actual and standard cost

The resultant balances are:
Debtors Debit R1000 Correct
Sales Credit (R1000) Correct
Cost of sales Debit R800 Correct R640 + R160 = R800
Stock Debit R200 Correct 200 units @ R1

If the Standard Costing is higher or more than actual cost, then the entries are reversed.

[Krisray]

Thank you for the detailed explanation Andromedia.
We have applied this method and Cost Of Sales and Stock where successfully adjusted.
Thanks again.