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Average Cost Calculation

Posted on by 65

Hi, 

After processing few sales invoices for some of our inventory items, the cost of sales were all Zeros, the revenue is captured but not the cost. These inventory items are manufactured inhouse, i.e. after completing a job, we run item journal and create positive adjustment to increase the value and quantity of (manufactured inventory), we do that manually. 

There was a timing gap between the sale - happened earlier - and the time when positive adjustments were made, could that be the reason why the cost was zero, should the system recalculate the value of the items once they are adjusted to inventory or D365C never adjusts cost back?

Appreciate your feedback.

Thanks a lot.

Wael

  • Suggested answer
    Grygory.Ivanov Profile Picture
    Grygory.Ivanov 160 on at
    RE: Average Cost Calculation

    Wael,

    You tagged D365 BC but posted this in D365 F&SCM/AX forum - but overall process might be very similar in BC. If you manufacture a product, that becomes available for sales before you finalize production\work order (and even invoice sales order before that happens) - you might face such scenarios when actual inventory value is not yet recognized in the system, therefore it is not applied to the sales transaction. In such cases, we usually rely on the inventory closing \ recalculation job that loops through the system and finds issue (outgoing) and receipt (incoming) inventory transactions pairs. In your case, it will be production order (receipt transaction) and sales order (issue transaction) that sells the product you produced.

    So once your production is financially completed (we call it End of the production order in AX/D365 SCM), your inventory closing will take care of the update of the sales invoice inventory transaction cost automatically.

    You still need to be careful as different costing methods work differently - weighted average might be very different when it comes to the calculation of the cost of the specific transaction (and dates are important, too), compared to other methods, like FIFO/LIFO. The process I explained above is working best in FIFO scenarios, and you might use weighted average - which might be simpler; but overall logic remains the same.

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