Examples of Making Cost Adjustments

Adjust the cost of an item to reflect fluctuating market costs, or to reflect other changes, such as increased overhead costs.

The following are examples of cost adjustments.

Adjustment at Item Cost Level

Assume the average cost of an item increases from $5 to $6, and the quantity on hand is 100 each. The distribution processor creates the following accounting entry to adjust the item cost.

Accounting Line Type	Debit	Credit
Inventory Valuation	$100	Not applicable
Offset	Not applicable	$100

Adjustment at Cost Element Level

Assume that an item has the following cost structure.

Cost Element	Amount
Material	$4.00
Freight	$1.00
Tax	$0.50
Utilities	$0.50

If the quantity on hand is 100 each, and you want to increase utilities cost from $0.50 to $1.00, the distribution processor creates the following accounting entry to adjust the item cost.

Accounting Line Type	Debit	Credit
Inventory Valuation - Utilities	$50	Not applicable
Offset	Not applicable	$50

Layer Inventory Cost Adjustment

Assume that you adjust the cost of an item from $9 to $11, and the remaining receipt layer quantity is 60 units. The distribution processor creates the following accounting entry to update inventory valuation.

Accounting Line Type	Debit	Credit
Inventory Valuation	$120	Not applicable
Offset	Not applicable	$120