Sub Contracting in FIFO Valuation Method

Question

Dear All,
I am facing one serious problem while using Subcontracting Addon.
We have developed Sub Contracting Add-on based on Standard Valuation Method and it is working fine.
But when we use FIFO Valuation method then it will not allow.
So could you please guide me the process/procedure how to implement Sub Contracting in FIFO Valuation Method.
Means what are changes needs to make it success in FIFO.
Thanks
Vikas

Answer 1

Hi
Yes its right not to change the earlier valued items on one costing method to another.
Imp. to note that, for manufacturing/sub-contracting the best costing method is Standard. Because, in manufacturing processes, its very much impossible to track the exact in and out of material as per FIFO; costing method comes into picture as you made some inward and outward or some movement of material, i.e. in case of purchasing material FIFO starts acting as you start consuming the materials or you transfer the material from one warehouse to another, other than in which you have received the material. When you have material on floor, its quite impossible to track the exact movement of material, means which material is actually being processed on the floor. So, If we use FIFO for such items, then actual costing will be always different from executed/system costing, Also, FIFO is suggested for only those business practices who are following the JIT principle. But, by having Special as costing method for manufacturing items, we avoid such problems to have actual costing, though it may again differ from actual costing, but overall as per the business experience we come to know COGS to actual basis.
In Special Costing method, it's recommendable to revise the Standard cost of the items, periodically.