The Standard cost is used for the manufactured items. A common scenario is that while processing the production order we will pick/consume more than the quantity/time we created the production order for. At this point, the system will not post any variances in the Production Order postings.

The WIP inventory value is inflated in this scenario, which is problematic because the production process for manufactured products can take three to six months. As per IAS 2 accounting standard, the inventory must be valued at either cost or net realizable value. Currently, the system is not doing that considering since the WIP is valued at the real cost rather than the standard cost.