Common Mistake in Updating Standard Cost in Dynamics NAV

Overview
Recently, I’ve been contacted by one of our readers on why their inventory cost was wrong. This particular company utilizes standard cost and the inventory cost never matched their inventory G/L account. Learning about how they updated standard cost, it was very apparent what went wrong. It was how the user updated their standard cost.

Companies will periodically update their Standard Cost to reflect closer to what the cost of their items. The timing of this really depends on the company and the industry they’re in. I’ve seen companies revaluate their standard cost every month, some do it every quarter, some companies revaluate their standard cost every year.

Updating the standard cost is a must for every company, or else you will see big variances when you run your financials, which accountants and auditors will question every single time.

Update Standard Cost without Changing Existing Inventory on Hand
Depending on how your company wants to recalculate standard cost, you may not want it to change the inventory value on hand.

To do this, all you need to do is just updating the Standard Cost field on the Item Card of the Stockkeeping Unit Card is only part of the process.

The folks at Microsoft made it even convenient for you to do so:

Standard Cost Update

All you need to do is just change the Standard Cost to whatever you like and you’re done. For manufacturing companies they may use the Calculate Standard Cost functionality.

What’s missing is you need to revaluate what you current have on hand to the new standard cost. Just updating the standard cost on the item card will only affect purchase or incoming items going forward. It will not affect historical standard cost values!

Where the Common Mistake Occurs
Not running Adjust Cost – Item Entries aside, the problem is not with the actual update of the standard cost, but the current inventory you have on hand.

Instead of running the Inventory Valuation report or the Inventory to G/L Reconcile report to get their inventory value, most accountants do the following:

  1. Grab the Standard Cost on the item card
  2. Multiply by the standard cost from step 1 by the quantity on hand
  3. Manually adjust the inventory G/L account

The 3rd step is what kills you. Making manual G/L entries will only make reconciliation between the item ledger and general ledger extremely tough and add a tremendous amount of (unless) work. In my career, I have not met a person that wants to do more work that is useless.

Update Standard Cost and Changing Existing Inventory on Hand
If you want to change your current inventory value on hand, you have to run the Revaluation Journal AFTER you update your standard cost.

Microsoft even published an article detailing the proper way of updating standard cost for your Dynamics NAV implementation. Click here for the article.

Conclusion
Properly used, the inventory function in NAV never goes wrong and will never require human intervention. What’s wrong is the information you feed it.

  1. Hello,
    We are using NAV2013R2, I am new at the company but not new to NAV.
    The use standard costing, they have a g/l account uninvoiced receipts account which consist of posted purchase invoices. They are stating that this should be reconciled with actual purchase orders that are received not invoiced…what is causing this g/l to be so high in dollar amount?

  2. The most likely reason is that the General Posting Setup and the Inventory Posting Setup are setup incorrectly. They’re probably pointing different transactions to the same G/L account.

  3. Hello,
    We have been using Standard Costing method for all our items and planning to add new items with Average costing method. Our BOMs are setup with this new item at average cost and all other components are using standard cost. Are there any specific information that we need to be aware of when BOM components of a product have standard and average costing?

  4. Nope! Other than that the item being consumed will be utilizing the average cost (Unit Cost field) instead of the standard cost. NAV will do it’s job for you!

  5. I have just ( last night ) revalued our standard cost using the Standard Cost Worksheet, and then posted the Reval worksheet that is generated as part of that process ( Nav 2009 Classic) and all is fine, but our Unit cost and standard cost are now out of sync ( and possibly may have been for some time ).

    How do these two get aligned, as I understand that margin reports on Invoices are picking up the Unit Cost ( and so is incorrectly reporting margin at this time)

  6. … and we are running auto Adjust Cost Entries twice a day 🙂

    Richard

  7. Hi Richard, if your Costing Method is set to Standard Cost, then the Unit Cost will be updated to the value on the Standard Cost field and it should be greyed out. This is how standard NAV 2009 works. Do you know if your VAR has customized this area?

  8. Re: customised – yes, The unit Cost field is hidden from the Item card, and we have a whole raft of additional costs (custom fields) based around a Current cost scenario, so we can monitor standard vs Actual. I then Roll Up from current to standard when told to by finance.

    It looks like that update may be broken here. I’ll get our VAR to check it through

    thanks for the input Alex.

    Richard

Leave a Comment


NOTE - You can use these HTML tags and attributes:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

This site uses Akismet to reduce spam. Learn how your comment data is processed.