1. Can you think of any type of business that might need to frequently update the standard cost of its materials?
2. Do you think variance reporting would be more relevant to managers if standard costs are regularly updated?

Once standard costs have been established and used by a business, they should be updated on a regular basis. Actual costs are frequently used as a basis for any updates. SAP, a leading enterprise resource planning (ERP) system, provides tools and data with which actual costs can be used to establish and update standards. A component of SAP called product costing (PC) is a very useful starting point for the exercise. This module captures the cost of manufacture and the costs of goods sold (including sales and administration overhead). Cost of manufacture as defined by SAP is composed of material and production costs, process costs and production overhead. The PC module can feed actual data to another component of SAP called cost object controlling (COO). This module in turn is used to calculate material usage costs, value work in progress and calculate variances. The PC module can also pass actual material cost data to material records in the system, thereby keeping the standard cost of material up-to-date automatically.