We are a manufacturing company and keeping an integrated set of financial and cost accounting records.

At the beginning of each financial year, we would review the prices of raw materials used in production and set a material price standard list for the important basic raw materials used in priduction for the new accounting year. Then we will proceed to revalue the opening inventories of raw materials and finished goods and work-in-process at the new standard prices and the difference will be charged to an account called 'Initial Standards Revision Variance'.

Similarly, for every month we will compute the price variance for the current month's purchase of raw materials and compare with the new standard prices and the difference will be recorded as 'Material Price Variance' each month.

The proplem we are facing now is that all the raw materials seems to be escalating every day due to world shortages and increased demand from developing countries.

Our questions are as follows :-

1. Should we set a new standard price for our raw materials and again calculate the 'initial standards revision variance in the middle of the accounting year? or

2. Should we hold back until the beginning of the next financial year to calcluate the 'Initial Standards Revision Variance' and meanwhile, we will be encountering big unfavourable
'Material Price Variance' on our monthly purchases of raw materials. That is to say, the initial standards revision would only be calculated at the beginning of each accounting year and not otherwise.


Thank you very much and I would be very glad and obliged to hear your esteemed adbvice. I have been searching many cost accounting books and publications and could not find any solutions.

Regds
Limkh