Production Planning at Moving Average Price

Question

We do very little manufacting, in fact, I would call it "re-packaging".  All our compnay does is take products from one package size and convert them to another package size, for example, we take bulk gallons and repackage it to 5 gallon pails.  The only materials involved is a 5 gallon pail and the 5 gallons of material that go into that pail.  We want the finished products moving average price (MAP) to be equal to the MAP of the inputs.  I know that finished products should not be carried at MAP, but we manufacture on such a small scale that I don't think we will have huge issues carrying finished goods at MAP.  We are not interested in knowing what the product cost vs. what the product should have cost to produce, all we want to happen is have the finished product=cost of inputs.
  Is there anyone that has done this?  If so, what is the best way to configure our system.
Thanks in advance,
Scott

Answer 1

The basic issue with moving average price for manufactured items is getting all the costs on the production/process orders before the finished items is consumed out of stock.  For example, make 10 items with costs of $100, so moving average price is $10 each.  9 of the finished items are then consumed leaving 1 in stock.  An additional cost is incurred on the production/process order of $50 (i.e. missed goods issue, COGI error, etc.) the single item in stock will now have a moving average price of $60 ($10 + $50).  If the finished item is fully consumed then the $50 goes to a production variance account.
With standard price you consume for the same price (subject to periodic recalcalution) and analyis your production variances.