Understanding the Replacement Cost for WIPG and FG Process

The fiscal authority in Chile requires that WIPG and FG that exist at the end of a reporting cycle be valued at their replacement cost. The replacement cost is calculated using the adjusted value of the raw materials and the cost of the labor for the items for the last month of production. The new calculated cost becomes the new unit cost for the item. The system generates a journal entry to reflect the cost difference between the new calculated unit cost and the historical cost.

To make inventory inflation adjustments, for the same period in time:

1. Execute the actual cost process for WIP and FG.

2. Execute the inventory inflation adjustment process for raw materials and resale goods that have a balance.

   The system calculates the adjustment for raw materials and resale goods that have a balance and those that do not have a balance. For items without a balance, the system does not update the item cost and the general ledger; the system stores the values in tables for later use. The system calculates and stores these values because the raw material values are used in the calculations for WIP and FG.

3. Execute the inventory inflation adjustment process for WIP and FG that have balances at the end of the period.

   If the WIP and FG had production in the period, the system uses the adjusted costs of the raw materials, the cost of labor, and the indirect costs for the period to calculate the inventory inflation adjustment.

   If the WIP and FG did not have any production in the period, the system calculates the inventory adjustment uses the historic actual cost multiplied by the consumer price index (IPC). The historic actual cost includes the cost of the raw materials, labor costs, machine costs, and indirect costs.

Important: You must execute the actual cost and inventory inflation adjustment processes in the order indicated to ensure data integrity. The system verifies that the actual cost and inventory inflation adjustments for raw materials were completed before enabling the execution of the inventory inflation adjustment process for WIP and FG, but the system does not validate the order in which you run the processes.

The system calculates the inflation adjustment for WIPG and FG that have a balance at the end of the specified period. You can execute the adjustment process in proof mode before completing it in final mode, and you can inquire on the new calculated costs.

Use these programs to calculate and update costs.