Note on your calculations: If you account for everything, the minus 100 would have hit the GL for a -$500 loss (shrinkage etc). Then your $1010 would be an inventory overvaluation that would have been caught on the accounting side as you would have variance between the purchase price (amount actually paid $510) and the inventory value ($1010). Thus, the shrinkage GL transaction would have been against inventory and oddly enough, be okay.
In my years of inventory programming with Average, Standard, Replacement, FIFO, LIFO and my favorite (FISH) methods, they all seem to be on the inventory side and the actuality of it comes from the accounting side. Mind you, I'm not a CPA. But I've danced on both sides for almost 30 years and the accounting departments seem to prevail. The buck truly stops there. Even if the COGS on the sales of the high-priced were to have their $10 cost (versus probaly their $8 selling price), it comes out in the wash as well. I'm just mentioning that it's not just inventory. It's the whole system. My 2 cents. Mark Johnson P.S. One of my clients is a manufacturer (recycler) of thermoplastics and they spend an inordinate amount of time fiddling with the standard costs, batch processing costs, actual inventory purchase costs etc, etc. They dictate the price they PAY for recycled plastics based on what their internal averages are. Truly an accountant's exercise. ----- Original Message ----- From: "Kate Stanton" <[EMAIL PROTECTED]> To: <[email protected]> Sent: Tuesday, August 28, 2007 9:55 PM Subject: Re: [U2] Moving Average Cost > Average cost is fraught. > > I don't think there is a way around the scenario: > - 100 in stock @ $5 each average cost (value $500) > - adjust all of them out (no effect on average cost) > - receive 1 at $10, so average cost is now $10 each > - adjust the 100 back in. Inventory is now worth $1010. > > We have a manufacturing system, which makes it easier to justify using the > much cleaner standard costing system, although it is more acceptable to call > it "standard replacement cost". > > Agree - if you are batch controlled, it is best to keep all the costs of > every batch, so you can then report on actual cost. Trouble is, you should > not try to keep valuation at actual, because invoices or other costs may not > come in until well after the goods have been sold. Keeping the actual per > batch means you can report on actual at a later date, once all the costs are > in. > > If you use anything except standard (replacement) cost, and keep General > Ledger asset accounts up to date, you have to post revaluation of inventory > with every receipt. Messy. > > Trouble is, some accountants are uncomfortable with standard (replacement) > cost, as they feel it is too complicated - they could not understand it at > university, and now it looks hard. Pity, when good analysis of variances > makes this a really good management tool! > > My 2 cents. > ----- Original Message ----- > From: "Brutzman, Bill" <[EMAIL PROTECTED]> > To: <[email protected]> > Sent: Wednesday, August 29, 2007 8:53 AM > Subject: RE: [U2] Moving Average Cost > > > > We have done a lot here recently with inventory valuations. > > > > Why care about "Moving Average Costs". Consider using receivers as lot > > numbers and > > do actual costs of what is there. > > > > We do our valuations on a monthly basis. If weekly or daily costs are > > needed, consider saving this daily data to a little database. > > > > I guess that we could talk about it... > > > > --Bill > > > > 973.471.7770 x145 > > > > -----Original Message----- > > From: [EMAIL PROTECTED] > > [mailto:[EMAIL PROTECTED] Behalf Of Baker Hughes > > Sent: Tuesday, August 28, 2007 2:33 PM > > To: [email protected] > > Subject: [U2] Moving Average Cost > > > > > > Hey, > > > > I have a distribution/manufacturing question. Could some of you share > > your formula for calculating Moving Average Cost. > > > > Consider: > > > > Assume you are receiving stock into the warehouse, and recalculating > > your new average cost upon each receipt (which later serves as basis for > > your cost-plus price quote, but that's immaterial to the formula). > > > > Since you also have negative stock movements (cycle count inventory > > adjustments, or adjust quantities on- purchase receipts) should you not > > use the absolute qty and absolute cost of the movement, when calculating > > your moving avg cost? > > > > Formula A: > > Extended.Cost.Rcpt = Qty.Rcvd * Cost.Ea > > Total.Inventory.Value = (Qty.OH * Old.Avg.Cost) + Extended.Cost.Rcpt > > Total.QOH = Qty.OH + Qty.Rcvd > > New.Avg.Cost = Total.Inventory.Value / Total.QOH > > > > Ex. 1 - a positive Qty Received: > > Extended.Cost.Rcpt = 10,000 * 2.8242 [28,242.00] > > Total.Inventory.Value = (11,000 * 2.8215) + Extended.Cost.Rcpt > > [59,278.50] > > Total.QOH = 11,000 + 10,000 [21,000] > > New.Avg.Cost = 59,278.5 / 21,000 [2.8227] > > > > Ex. 2 - a negative Qty Received (Adjusted): > > Extended.Cost.Rcpt = -10,000 * 2.8242 [-28,242.00] > > Total.Inventory.Value = (11,000 * 2.8215) + Extended.Cost.Rcpt > > [2,794.50] > > Total.QOH = 11,000 - 10,000 [1,000] > > New.Avg.Cost = 2,794.50 / 1,000 [2.7945] > > > > > > Formula B: > > Extended.Cost.Rcpt = ABS(Qty.Rcvd) * ABS(Cost.Ea) > > Total.Inventory.Value = (Qty.OH * Old.Avg.Cost) + Extended.Cost.Rcpt > > Total.ABS.QOH = Qty.OH + ABS(Qty.Rcvd) > > New.Avg.Cost = Total.Inventory.Value / Total.ABS.QOH > > > > With Formula B the new.avg.cost would be the same for both Ex. 1 & 2 > > > > TIA, > > > > -Baker > > ------- > > u2-users mailing list > > [email protected] > > To unsubscribe please visit http://listserver.u2ug.org/ > > ------- > > u2-users mailing list > > [email protected] > > To unsubscribe please visit http://listserver.u2ug.org/ > ------- > u2-users mailing list > [email protected] > To unsubscribe please visit http://listserver.u2ug.org/ ------- u2-users mailing list [email protected] To unsubscribe please visit http://listserver.u2ug.org/
