Standard Cost - Purchase Discounts and COGS

Joe13

If a line discount is applied to a standard cost item being purchased, technically you paid the discounted amount and not the standard cost amount, but when COGS is hit when selling that item it is hit for the Standard Cost.

Example: standard Cost = 475.00
Line Discount applied = 75.00

You paid 400.00 for the item, but when COGS is hit when selling the item it is hit for 475.00...

Is this compliant with GAAP?

Savatage

purchases & purchase discount should be 2 dfferent g/l accounts. It's in the setup.

not being an accountant....perhaps that's how they do it & subtract the purch discounts when doing thier "math"

else you have an incorrect setup and the discount is not assigned to it's g/l account.

..Just speculating

ssingla

Thats the whole meaning of standard cost i.e. you standardize (fix) the cost of the item. It is irrelevant you buy it for more or less. The cost of the item will be standard cost and the difference will be posted to variance.
Therefore when the item is sold COGS is calculated on standard cost of the item.

Joe13

Savatage - The Purchase Discount mapping in Posting Setup is not used for Costing Method = Standard, just the Purchase Variance account is.

SSingla - I agree that the purpose of Standard Costing is to standardize the cost to a specific value.

The only question I have on this is if this is compliant with GAAP? Does anyone out there know this answer?

Alex_Chow

Isn't this question better suited for your CPA?

I believe this is GAAP compliant (I'm not a CPA). Any differences between the actual purchase cost and the standard cost is recorded as a variance.

Imagine if you do your cost analysis based on standard cost. If you include the discount, your number will never come out correctly.

themave

Joe13 wrote:

Savatage - The Purchase Discount mapping in Posting Setup is not used for Costing Method = Standard, just the Purchase Variance account is.

SSingla - I agree that the purpose of Standard Costing is to standardize the cost to a specific value.

The only question I have on this is if this is compliant with GAAP? Does anyone out there know this answer?

yes, the diffenition of standard cost from GAAP is the same, therefore it is compliant.