Subjectivity of Actual Costs
I wake up philosophical. Im a Woody Allen fan, and very often watch his old flicks. Yesterday i see ‘Love and Death’, its a nice movie, i recommend you. I guess you are thinking, what is the relation with a Woody Allen movie and Actual Costing?
Last week i begin a new project, and one of my 1st activities is always explain the Costing Methods for Materials. This definition is hard and complicated, and very often depends on the Managers, and the managers are not part of the project team. Why explain the way the system works? Because if you don’t explain things, other people ‘assume’.
I think the principal functionality of ML is Actual Costing. Most of the companies want ‘Actual Costs’. The problem is ‘what is Actual Cost’ from the point of view of a company ? The words ‘Actual Cost’ are subjective. Lets see a subjectivity definition:
Subjectivity is the condition of being a subject: i.e., the quality of possessing perspectives, experiences, feelings, beliefs, desires, and/or power. Subjectivity is used as an explanation for what influences and informs people’s judgments about truth or reality. It is the collection of the perceptions, experiences, expectations, personal or cultural understanding, and beliefs specific to a person. It is often used in contrast to the term objectivity, which is described as a view of truth or reality which is free of any individual’s influence.
I don’t like to assume, i like to test, like to watch and feel, like to confirm. And of course, I like my users work in this way. My 1st rule is ‘don’t assume’.
Based on this, long time ago i decided to don’t use the word ‘actual cost’ in my projects because this word is ‘Subjective’. When someone ask me about the costing methods in SAP, my response is the following (just a resume):
V/2 – Variable in SAP> is just a Daily Moving Average….
S/2 – Standard in SAP > Is Fix Standard. The difference between the Standard and the total cost incurred go to P/L Account. Inventory and GOGS is not revaluated correctly….
S/3 – Actual Cost in SAP> Its a ‘Monthly Average Actual Cost’, and it means The system calculate the average cost of incurred in the month + the actual of the beginning stock. At period End Closing, COGS and Stock are re-valuated. The monthly average consider all the cost you want to include (full cost absorption), but we have to define the way (or drivers) to do the indirect cost absorption. We have to define a ‘fair’ way to do the absorption… Ok you can say ‘fair’ and ‘justice’ is subjective.
Well..this is just a resume, the conversations about this topic are large, philosophical, lots of hours of questions and answers. Why i spend lot of time on this? because the your team must share the same knowledge, and don’t assume.
Just to end, check this extract from Love and Death, discussing God Existence and subjectivity.