--- title: "Configure Costing Method" canonical: "https://kb.myframeworks.com.au/space/FRAM/390070273/Configure%20Costing%20Method" format: markdown --- Frameworks can value inventory using either **Standard Costing** or **Average Costing**. This configuration determines how product costs are calculated and posted to the general ledger, affecting inventory valuation and financial reporting. **Who performs this:** System Administrator **When to configure:** During initial implementation before processing any stock transactions **Impact:** Affects inventory valuation, general ledger postings, and how costs are tracked across all modules > 📝 ## Prerequisites > 📝 > 📝 - System Administrator access to Company Maintenance and System Settings > 📝 - Decision made on costing method (consult with accountant before proceeding) > 📝 - Understanding of Standard vs Average costing differences (see Understanding Costing Methods in Frameworks) > 📝 - No active stock transactions or open periods (if changing from existing method) ## Configuration Options Choose the configuration that matches your business requirements. Each option includes the specific flag settings and configuration steps needed. ### Option 1: Standard Costing Environment **When to use:** When product costs are stable, high-volume products have predictable costs, or staff need simple cost understanding. **How stock is valued:** Stock is valued at Product Cost (defined in Product Maintenance). Variations between purchase cost and Product Cost post to gains/losses general ledger accounts. Cost changes require general ledger adjustments to maintain alignment. **Business benefits:** - Staff see consistent, predetermined costs - Simplest method to reconcile in financials - Easiest for warehouse and sales staff to understand **Configuration steps:** 1. From the **Frameworks menu, **navigate to **System Administration > System Setup > Company & Branch > Company Maintenance** 2. **Disable** the **Average Costing** flag 3. Click **Save** 4. From the **Frameworks menu, **navigate to **System Administration > System Setup > Configuration > System Settings - Flags** 5. **Enable** the **InvStdCst** flag 6. **Disable** the **InvStdAvg** flag 7. Click **Save** > ✅ **Tip:** On System Settings - Flag table, filter the Code column with **InvStd** to show just the costing method flags. **Flag settings:** - Company Maintenance: **Average Costing** = Disabled - System Settings - Flags: **InvStdCst** = Enabled - System Settings - Flags: **InvStdAvg** = Disabled ### Option 2: Average Costing Environment **When to use:** When product costs fluctuate significantly, accurate GL valuation is critical, or business maintains current stock receipting. **How stock is valued:** Stock is valued at rolling Average Cost (recalculated with each receipt). Average Cost adjusts automatically based on purchase prices, providing the most accurate inventory valuation in the general ledger. **Business benefits:** - Most accurate inventory valuation in the general ledger - Cost of Goods Sold (COGS) reflects actual average costs - Automatic cost adjustments based on purchase prices **Business considerations:** - More complex for staff to understand - Requires disciplined stock receipting and invoice processing **Configuration steps:** 1. From the **Frameworks menu, **navigate to **System Administration > System Setup > Company & Branch > Company Maintenance** 2. **Enable** the **Average Costing** flag 3. Click **Save** 4. From the **Frameworks menu, **navigate to **System Administration > System Setup > Configuration > System Settings - Flags** 5. **Enable** the **InvStdAvg** flag 6. **Disable** the **InvStdCst** flag 7. Click **Save** > ✅ **Tip:** On System Settings - Flag table, filter the Code column with **InvStd** to show just the costing method flags. **Flag settings:** - Company Maintenance: **Average Costing** = Enabled - System Settings - Flags: **InvStdAvg** = Enabled - System Settings - Flags: **InvStdCst** = Disabled ### Option 3: Average Costing with Standard Cost Display in Sales **When to use:** When using Average Costing for GL accuracy but staff need Standard Cost visibility for pricing and margin calculations. This is the most common configuration for businesses using Average Costing. **How stock is valued:** The general ledger uses Average Costing for accurate inventory valuation, but Sales Order Processing displays Standard Cost to users for consistency and ease of understanding. **Business benefits:** - General ledger maintains accurate Average Cost valuation - Sales staff see familiar Standard Cost for pricing decisions - Balances financial accuracy with operational simplicity - Most common choice for Average Costing implementations **Configuration steps:** 1. From the **Frameworks menu, **navigate to **System Administration > System Setup > Company & Branch > Company Maintenance** 2. **Enable** the **Average Costing** flag 3. Click **Save** 4. From the **Frameworks menu, **navigate to **System Administration > System Setup > Configuration > System Settings - Flags** 5. **Enable** the **InvStdAvg** flag 6. **Disable** the **InvStdCst** flag 7. **Disable** the **SopStdAvg** flag 8. Click **Save** **Flag settings:** - Company Maintenance: **Average Costing** = Enabled - System Settings - Flags: **InvStdAvg** = Enabled - System Settings - Flags: **InvStdCst** = Disabled - System Settings - Flags: **SopStdAvg** = Disabled > ⚠ī¸ **Important:** The **SopStdAvg** flag only applies when Average Costing is enabled. When disabled, Sales Order Processing displays Standard Cost even though the system uses Average Cost for GL postings. ## Result After completing configuration: - Inventory valuation method is set to either Standard or Average Costing - System flags control how costs are calculated and posted to GL - Sales Order Processing displays costs according to your chosen configuration - All future stock movements follow the configured costing method - Existing stock remains at previous valuations until adjusted > ℹī¸ ### Product Costing Methods and Components of Cost > ℹī¸ > ℹī¸ When the `InvUseProdCostingMth` system flag is enabled, additional costing capabilities become available on top of the standard or average costing environment configured on this page. **Product costing methods** allow individual products to be assigned a specific method for deriving their base cost (such as Preferred Supplier Cost, Last Receipt Cost or Market Cost) with optional variance percentages. **Components of cost** allow additional expenses (such as freight, handling and customs) to be defined and tracked at the product level, contributing to a landed cost that more accurately reflects the true cost of goods. > ℹī¸ > ℹī¸ The costing environment configured on this page determines how GL postings behave when components of cost are applied during stock receipting. In a standard cost environment, cost components post to both an expense account and a clearing account per branch. In an average cost environment, cost components post to a clearing account only. > ✅ Refer to [Understanding Product Costing Methods](https://sterlandsupport.atlassian.net/wiki/spaces/FRAM/pages/529661976) and [Understanding Components of Cost](https://sterlandsupport.atlassian.net/wiki/spaces/FRAM/pages/525991940) and the [Components of Cost - Implementation Guide](https://sterlandsupport.atlassian.net/wiki/spaces/FRAM/pages/529891331) for detailed information on configuring and using these features. --- > ✅ ## Related Information > ✅ > ✅ - [Understanding Costing Methods in Frameworks](https://sterlandsupport.atlassian.net/wiki/spaces/FRAM/pages/28390208) - Detailed explanation of Standard vs Average Costing > ✅ - [Product Maintenance - Field Definitions](https://sterlandsupport.atlassian.net/wiki/spaces/FRAM/pages/28378114) - Where Product Cost is defined > ✅ - [Company Maintenance - Field Definitions](https://sterlandsupport.atlassian.net/wiki/spaces/FRAM/pages/28382666) - Where Average Costing flag is located > ✅ - [System Settings Reference](https://sterlandsupport.atlassian.net/wiki/spaces/FRAM/pages/28405058) - Complete flag definitions