Defining Standard Cost Components and Procedures
Getting accurate results from standard costing starts with clearly defining each cost component. Most manufacturing businesses track five primary cost categories: Direct Materials, Material Overhead, Direct Labor, Manufacturing Overhead, and Landed Cost.
Breaking Down Production Costs into Standard Components
To build your standard costing structure, head into the Setup section and look under Accounting for Accounting Lists. Here’s how to define each cost category:
Set the type as either Material or Service
Link the cost category to a suitable Expense Account
Add descriptive labels to keep things easy for team members to understand
For manufacturers dealing with advanced routing or WIP flows, the system automatically incorporates machine and labor costs from work centers into standard costs.
Tying Routings and BOMs into Standard Costing
Assembly items get their standard costs from the components listed in the Bill of Materials (BOM). When you perform a standard cost rollup, NetSuite:
Calculates the standard cost for each BOM item
Adds labor from routing work centers
Factors in overhead from cost categories
Combines everything into a total standard cost for the assembly item
This means that any time a BOM changes, the standard cost updates automatically - no manual recalculations needed.
Entering and Updating Standard Costs for Materials and Labor
You’ll want to review and adjust standard costs regularly to reflect real-world changes in labor rates or material prices. How often? That depends on how fast your costs move.
Steps to Manually Enter Standard Costs for Single Inventory Items:
Go to the item record
Manually input the standard cost values
To update in bulk:
Under Accounting Lists, create a new entry
Name it descriptively (example: “Q1-2025”)
Select a Location
Choose a source (Item Default is your best bet)
Add new entries for each item that needs updated costs
Choose the Cost Version and the right Location
Break down the costs by category in the sublist
Save it
Open a new rollup transaction
Pick your Standard Cost Version and the correct Effective Date
Either apply to all items or choose a subset
Enable Update Inventory Cost and Rollup Assemblies Based on Components
Submit
Automating Standard Cost Changes
If you deal with landed costs like freight or customs, automating updates can save serious time. Using SuiteScript automation, you can:
Track vendor pricing in real time
Identify items with outdated standard costs
Send email alerts when thresholds are exceeded
This strategy stops big variances from accumulating in your accounts and helps keep valuation up to date.
Tracking Production with Standard Costing in NetSuite
The true strength of Versich's standard costing framework starts showing during production tracking. With every assembly build, inventory change, or completed work order, NetSuite creates variance entries that spotlight inefficiencies.
Using Work Orders and Assembly Builds to Monitor Costs
Once you’ve launched standard costing, NetSuite compares your expected costs to real outcomes for every production action:
Materials: Planned quantity vs. actual use
Unit cost: Standard vs. what you paid
Time: Estimated labor hours vs. what was recorded
Overhead: Budgeted charges vs. applied rates
Any differences are posted straight to variance accounts. And if you’re running advanced routing, you’ll also see variances tied to labor efficiency and machine use.
Keeping WIP and Routings in Sync with Standard Costs
Work-in-process accounting becomes cleaner with standard costing. As production rolls forward:
WIP entries are made using the standard cost
Routing completions pull in preset labor costs
Finished items are valued at full standard cost
Any deviation between expected and actual costs shows up in variance accounts - helping you maintain consistent inventory valuation.
Variance Analysis: Making Sense of Production Data
The insights come when you start analyzing cost variances. With the NetSuite 2024.2+ Cost Variance Analysis SuiteApp, you can dig into each work order and pinpoint exactly where the cost differences came from. This helps you take swift action to course-correct production processes before variances grow.
Interpreting Material and Labor Variances in NetSuite
Understanding the different types of variances and what they tell you is crucial to refining your manufacturing and purchasing operations in NetSuite.
Common variance types and what they mean:
Purchase Price Variance (PPV)
Production Quantity Variance
Labor Efficiency Variance
Using Variance Reports for Continuous Improvement
Make monthly variance analytics a regular leadership activity with a well-structured agenda:
Start with the top 10 unfavorable variances by dollar amount
Identify root causes - vendor issues, inaccurate standards, or flawed processes
Assign action items, complete with owners and due dates
Track improvements compared to prior periods
Manufacturers that follow this routine with Versich typically report more stable gross margins and stronger cost control.
NetSuite Reports and Searches for Standard Costing Accuracy
Versich recommends leveraging both NetSuite's out-of-the-box variance reports and building tailored saved searches to uncover actionable insights unique to your operations.
Custom Saved Searches to Enhance Cost Variance Analysis:
Stale Standard Costs
Purchase Price Variance by Vendor
Production Variance by Item
Key Financial Reports Impacted by Standard Costing
Standard costing influences several core financial reports in your NetSuite environment:
Income Statement
Balance Sheet
Inventory Valuation
Gross Margin Analysis
Best Practices for Maintaining Standard Costs in NetSuite
Effective standard costing isn't a one-time setup - it’s a long-term discipline. Overly static standards in a fast-changing industry can lead to misinformed decisions. Versich recommends sticking to a strict review cadence.
Set Up a Structured Review Cycle:
Monthly Tasks:
Reconcile variance accounts to ensure correct expense allocation
Review the biggest cost discrepancies with department leads
Document action steps and their outcomes
Quarterly Tasks:
Adjust standards for cost shifts (e.g., wage changes, new vendor contracts)
Run standard cost rollups for assemblies
Revalue on-hand inventory to reflect updated costs
Archive previous standards for recordkeeping
Annual Tasks:
Conduct a full standard cost audit with a CPA
Benchmark your standards against industry averages
Confirm BOM integrity with a production engineer
Ensuring Data Accuracy and Compliance
To stay audit-ready and compliant with SOX requirements:
All inventory revaluations must post permanent entries to the general ledger
NetSuite’s System Notes should track all updates to standard costs
Variance records should link back to their originating transactions
Use custom fields to log approval workflows for cost changes
Keep a detailed log of why each standard cost was updated - auditors will look for this.
Troubleshooting Common Standard Costing Issues in NetSuite
No matter how well you implement your costing model, issues will arise from time to time. Knowing where to look and how to respond quickly will keep your operations on track.
Identifying and Resolving Cost Variance Inaccuracies
Issue: Can't enable Standard Costing (checkbox grayed out). Solution: First, make sure Multi-Location Inventory is enabled. Next, go to Transfer Order Preferences and disable "Use Item Cost as Transfer Cost." These two steps will allow the Standard Costing option to be selected.
Issue: Planned Standard Cost rollup creates no records.s Solution: Double-check that "Update Inventory Cost" is selected. Also, confirm that the "Standard Cost" field on each item record is populated - both are required for the cost rollup to function.
Issue: Assembly costs are not being calculated in rollu.p Solution: Ensure the BOMs include component items that already have defined standard costs. Also, verify the “Rollup Assemblies Based on Components” option is enabled for accurate cost calculation.
Issue: Variance posting to the wrong GL account.t Solution: Check that variance accounts are defined not just in Inventory Costing Preferences but also on each item record itself. Both must be configured properly to control how expenses are posted.
Issue: Large inventory revaluation times out. Solution: Divide the revaluation into smaller batches, ideally fewer than 500 items. It’s also best to run these processes during off-peak hours to avoid timeouts and resource contention.
When to Seek Expert NetSuite Support
Businesses with straightforward needs - less than 500 basic inventory items, operating from a single location, and without assemblies - can usually manage without outside help.
Simple BOM structures with 2 - 3 levels and no more than 20 components per assembly are manageable in-house.
If you have a basic account structure for posting variances, internal teams can usually configure the setup effectively.
Implementing standard costing for the first time
Migrating from a legacy ERP where standard costs already exist
Supporting multiple locations, each with its own standards
Handling complex assemblies with multiple sub-assemblies beyond 3 BOM levels
Operating in a multi-currency or multi-subsidiary environment
Why Versich is Your Standard Costing Implementation Partner
Setting up standard costing involves more than toggling a checkbox - it’s about integrating cost accounting into the real-world flow of your manufacturing operations. Versich’s NetSuite consultants understand this deeply.
Our team’s background in manufacturing ensures that standard costing setups are aligned with your actual production and financial reporting processes. As a recognized NetSuite Alliance Partner, Versich brings configuration expertise across everything from work orders to BOMs, WIP accounting, and routing integrations.
Deep industry focus in manufacturing and wholesale distribution
35+ proprietary NetSuite apps speed up implementation and reduce costs
Relationship-first approach - our Midwest roots show in our commitment to reliability and transparency
Continued support long after go-live to ensure long-term success
One client summed it up perfectly after working with our team: “Within the first two meetings, our team's morale and hope for the future dramatically improved since your team is totally on it. They communicate super clearly, and they get things done efficiently.”
If your organization is considering standard costing or is encountering pain points with an existing configuration, connect with Versich for a strategic consultation. Bring your challenges - we’ll bring clarity and smart solutions.
