A. Our system operates on a “Standard Cost Basis” (SCB). This means that the value of inventory does not fluctuate based on the purchase price, and that users do not have to use FIFO (First In, First Out) inventory management for financial reasons. (They may wish to because of other considerations, such as shelf life.) Because of SCB, we necessarily utilize Purchase Price Variance (PPV) to account for the difference between the SCB value and the actual purchase cost. This measure also helps companies set their standard cost, based on a review of the PPV for given components. Once a reasonable standard cost is established, then the Purchasing department has metrics through the PPV reports to determine whether or not they are improving on price negotiations, or are unable to attain the standard cost. Purchasing departments with a positive PPV are contributing to the bottom line of the company. Because of this, Purchasing will tend to navigate standard costs to the higher side of average. With correct Standard Costs, Marketing Department can better control their margins. And Marketing will tend to drive standard costs to the lower side of average, thus improving their margins.
ManEx does not have a direct provision for assessing current inventory based on purchase price. An approximation could be offered by combining the PPV of the last month with the on-hand inventory value. This is an approximation, because there may be old and/or obsolete inventory which was received at a significant PPV, and would not be accurately valued considering only the standard cost.
But there is provision within ManEx to account for inventory based on purchase price. It involves the utilization of the Project module. All inventory in which the company may wish to evaluate based on the purchase price would have to be allocated to a project at the time of purchase. When this is done, the purchasing information for the components bought against a project is retained. It can be recovered through the use of reports in the Project Module. The job costing module will also identify the purchase price information for components allocated to a job or work order.
Another method of tracking original costs is by using Lot Tracking. When Lot Tracking is used, the purchase information is retained with the Lot Information. A report may then be generated to report the original pricing of lot tracked material in inventory.
While these two methods are currently available, a third is in development. When we complete the IPKey development, and of the company elects to use the IPKey tracking, we will be able to create reports that will identify the purchase price of all inventory, although it will not be the book value of inventory.
