Periodic Average Cost Adjustments
Value adjustment and opening cost override are the periodic average cost adjustments that you can create using the Manage Periodic Average Cost Adjustments task.
The periodic average cost can be adjusted by user created adjustments or automatically based on business events, such as invoice price changes. You can create the periodic average cost adjustments listed here:
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Value Adjustment: You can adjust the inventory value by specifying an amount as the adjustment. This adjustment value is then used to calculate the periodic average cost. An example of value adjustment could be a rebate that you received and need to be apply on all the inventory quantities.
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Opening Cost Override: You can define a new cost for the opening balance of the period. If you don’t want to use the prior period cost, you define an opening cost override that the cost processor must use to calculate the periodic average cost for the period. This is also useful when you want to define a cost for a newly transacted item. When defining the opening cost override, you can select the cost elements that you would like to change and specify the new cost for each cost element. A use case where you would want to define an opening cost override is that the prior period cost was defaulted to 0 due to negative inventory. You aren’t comfortable using 0 as the prior period cost and want to use a new cost.
If you have defined an opening cost override and value adjustments for a cost organization, cost book, item, valuation unit, and period combination, then the formula to calculate the periodic average cost for the item will be:
Periodic Average Cost = [(opening cost override * prior
period ending balance) + SUM (transaction cost * transaction quantity) + overheads +
value adjustments] / (prior period ending balance +
transaction quantity for this period)
You can create, update, and delete adjustments only if the corresponding period is in the Open or Pending close status. Also, you can’t update or delete an opening cost override after it has been processed, even if the corresponding period is in the Open or Pending close status.
After you create and process the adjustments by running the Create Cost Accounting Distributions process, you can check the processing results, including any warning or error messages, on the Review Cost Accounting Process page. You can view the corresponding accounting entries on the Review Cost Distributions page. Also, you can check the updated periodic average cost of the item on the Review Item Costs page.
The automatic adjustments include:
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Acquisition cost adjustments due to invoice price variance, landed costs, purchase order price changes, and so on.
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Variance adjustments are created when either the inventory value is negative or the total quantity is less than or equal to 0.
| Total Quantity | Total Inventory Value | Variance Calculation | Periodic Average Cost |
|---|---|---|---|
| > 0 | > 0 | No variance | > 0 |
| < 0 | < 0 | No variance | > 0 |
| > 0 | < 0 | Variance gain to bring inventory value to 0 | = 0 |
| < 0 | > 0 | Variance loss to bring inventory value to 0 | = 0 |
| = 0 | > 0 | Variance loss to bring inventory value to 0 | = 0 |
| = 0 | < 0 | Variance gain to bring inventory value to 0 | = 0 |
In the table, based on the period average cost calculation formula,
Total Quantity = (prior period ending balance + transaction quantity for this period)
Total Inventory Value = [(prior period average cost * prior period ending balance) + SUM (transaction cost * transaction quantity) + overheads + adjustments]