Hi, technically you can use average cost on subcontracted product. Average cost is based on the actual cost of the subcontract order.

Now the issue is often, to have all the costs recorded in the system when running the actual cost calculation: if you know your actual cost after the stock is already delivered, this is too late.

So it is interesting to define a standard cost (a realistic average cost of your subcontract process) based on the average cost of the components (if average cost of the component is changing from one motnh to another, then you can use the revised standard cost). This way, you will value in your GL a cost you can easily explain and run the cost calculation when all the cost have been registered (when you know the exact quantity of stock consumed and the subcontractor invoice). The actual cost can be viewed in the system even if your are valuing the product with standard cost and even better variances will be calculated automatically and can be posted in your GL as well (on a loss and profit account for instance). If you detect big variance betwwen the standard cost and the average cost, you can readjust the standard cost to be closer to the average cost.