Inventory Costing and Valuation Method Question

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Posted on by Ahmad_Safadi

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Initially, I am trying to understand how costing is preserved in Dynamics NAV when using the FIFO valuation method as an example. I have created an item, and assigned the FIFO as a valuation method. Then I posted the following transactions in sequence:

1- Purchase Order (26\01\2017) - Quantity: 100 piece, Unit Cost: 4.5

2- Item Journal (Positive Adjustment) - (28\01\2017) Quantity: 200 piece, Unit Cost: 6

3- Item Journal (Negative Adjustment) - (30\01\2017) Quantity: -65 piece

4- Item Journal (Negative Adjustment) - (30\01\2017) Quantity: -40 piece

My questions are:

Q1 - First of all, posting the number (3), which [ Item Journal (Negative Adjustment) - (30\01\2017) Quantity: -65 piece], the system automatically determines the unit cost which is 4.5 which seems perfect. Then, when posting number (4) which is [Item Journal (Negative Adjustment) - (30\01\2017) Quantity: -40 piece ], the systems keeps decreases the inventory by 40 pieces with the same unit cost 4.5 !!

I assume that transaction number four should decreases 35 pieces with unit cost (4.5) and 5 pieces with unit cost (6) since the valuation method is FIFO. Any explanation ?

Q2- I tried to post an item journal (negative adjustment) and the unit amount field is active, in which I could change the unit amount to anything, and post accordingly. Isn't this wrong from an accounting perspective ! To determine the cost of the negative transactions ? I assume that the system shall determine the unit cost automatically depending on which valuation method is assigned to the item.

Note >> I am using Cronus sample company, and have not changed any of the default setup or configuration

Thanks in Advance,

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Alexander Ermakov 28,096 on at

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Q1: Basically, you are doing the right thing and asking the right questions. The only thing you are missing is to run Adjust Cost - Item Entries batch job, which you can find under CRONUS International Ltd./Departments/Financial Management/Inventory menu. Doing that NAV will adjust the cost of corresponding items to correct values, in particular, the cost for the 5 pieces of your 4th transaction will be increased to 6 (there will be adjusting transaction for +1.5).

During the posting, you may have to post your documents in a different order, e.g., first post your number 2, then - number 3, then - number 4 and only afterwards number 1. In this case, the system should anyway realize that actually your initial cost is number 1 and make the correct adjustments, and it can be done if you run Adjust Cost - Item Entries batch job. This job runs through all the sequence of the items transactions in chronological order and makes needed corrections (regardless you had selected FIFO of Average). Refer more about this batch job here: msdn.microsoft.com/.../hh169387(v=nav.90).aspx .

Refer more to read about automatic cost adjustments:

msdn.microsoft.com/.../hh997365(v=nav.90).aspx

Refer more about costing methods:

msdn.microsoft.com/.../hh997373(v=nav.90).aspx

Q2: In theory, you can have negative stock in place. Imagine a situation that your items physically arrived to your warehouse, but your people had not yet entered the receipt (or booked less then actually arrived). However, there is a customer at your desk who already wants this items. If you will not allow the system to have negative inventory, you will not be able to sell it to the customer and write-off the items to stock. In this case, the system will use some (accrued) cost, based on the previous transactions (we call it "Expected" cost). Then, your customer will be happy and you will be able to analyze why there is a negative stock without a hurry, and deal with that - e.g., make a posting of receipt, and then run the same Adjust Cost batch job. The system will make correction of COGS accordingly.

There is an option to prevent system from going below zero, please refer more here:

msdn.microsoft.com/.../dn414711(v=nav.90).aspx

msdn.microsoft.com/.../dn414710(v=nav.90).aspx

So in my example the customer might leave unsatisfied, or you will deal with the lack of items in the system immediately.

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Indikauk 1,759 on at

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Hi A. Saf

Microsoft Dynamics NAV FIFO Costing Method is Working Perfect and you have done you testing correctly but you have missed something on it.

Reason for your Problem

Default Nav Cronus Inventory Setup is not Set to "Automatic Cost Posting" Yes by Default system is not passing the Item Cost Adjustment Automatically.(you need to do it running a batch job) what you can do is go to Financial Management ->Inventory ->and run the "Adjust Cost Item Entries" Batch Job This will give you Result what you need and you can check it from the Item Ledger Entries.

During Negative Adjustment if You Did Not Change the Unit amount then you will get the correct result.

For your Question 2 You should not Change the Unit Amount and system will Give Correct Unit Cost and Unit amount as soon as you post in the negative transaction you need to select only Quantity and Post no need to wary about the cost system will handle it for you.

Thanks,

Indika

if this answer is helped to resolve your problem kindly make verified answer that will help lot of other users have the same problem in future.

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Ahmad_Safadi 373 on at

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Thank you guys very much, everything is clear except for the second question. My question was precisely about the fact that I cant change the unit "cost" when posting a negative adjustment. Theoretically speaking, the valuation method shall determine the unit cost when withdrawing quantity.

I am not talking here about the fact that the system could allow minus inventory balance, which is quite understood. The question is, how can I prevent the unit cost from being changed when posting "negative adjustment" ?

Your feedback is highly appreciated,

Best Regards

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Indikauk 1,759 on at

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HI A. Saf

If you don't want Any body to Change Unit cost During Negative Inventory Posting then you can Do Followings.

1. Simple Way is Making Editable False for That Field from the Page (if you do this even when they Enter positive they will not be able to Change cost that might be a problem in some cases)

2. By Permission here in use Access by permission option for which yours have rights to particular Object can see that field and who doesn't have access will not see that fields

for more details for Access by permission please refer below link.

msdn.microsoft.com/.../dn789564(v=nav.90).aspx

3. you can do customization as per your requirement.

as per my Experience I can Recommend the 2nd Method so you can have a ability based on the user who will be able see and change field and who will not be able to see the field at all.

Thanks

Indika

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Ahmad_Safadi 373 on at

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One last question, in the item ledger or item register tables, inventory in and out transactions are recorded: such as:

Date Item Quantity Item Journal Unit Cost

1/1/2010 A 100 344 5

1/2/2010 A 200 345 5

1/3/2010 A 300 346 5

1/4/2010 A -500 347 5

Supposing that the valuation method is FIFO, how can I know from which cost layer the out transaction (item journal 347) has withdrawn ? I suppose there must be a link between the in and the out journals, right ?

Thanks in Advance,

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Indikauk 1,759 on at

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Hi A. Saf

When You Talk about FIFO Costing Method it will Always Remove First Purchase when ever there is outbound Transactions as per your example.

01/04/2010 Before the Negative your Stock is 600 and on 1st you are removing 500 so system will check issue Quantity with FIFO Table Entries and

1/1/2010 will fully Consume because Issuing Qty is More now Outbound balance 400

1/2/2010 will Fully Consume because issuing Qty is More now Outbound Balance 200

1/3/2010 Qty Available is 300 Required is 200 so system will take only 200 qty from you last inbound Transaction and you inventory balance will remain 100 qty form Item Journal 343.

if you want to see how the application happen or the Link go to the item ledger entry and click on the outbound transaction click on Navigate tab from the top ribbon and click on "Applied Entries" there you can see how the entries have issued with FIFO method.

Thanks

Indika

If this helped to solve your problem kindly make it verified answer and close the thread that will help community to find valid answers.

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Ahmad_Safadi 373 on at

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Thanks a million guys, you have absolutely answered all my questions.

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