Weighted average vs. Date weighted average

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Posted on by ivan60000

Hi everybody,

I found lot of discussion regarding explanation concerning what is the huge difference between Weighted average vs. Date weighted average.

However I don't understand clearly this difference to be honest with you...

Is someone can explain me with simple word this difference? An example will be appreciated.

Also what is the most stable on the account?

Many thanks for your help.

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Ludwig Reinhard Microsoft Employee on at

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RE: Weighted average vs. Date weighted average

Hi Ivan60000,

I would say that the major difference is in the consideration of inventory receipts for the calculation of the issue price.

While the weighted average principle also uses inventory receipts that occur after an issue for the calculation of the issue price, the weighted average date principle does not do so.

Example:

Inventory receipt A: 01 October

Inventory receipt B: 27 October

Inventory issue: 15 October

The weighted average principle also uses the receipt on 27 October to calculate the issue Price on 15 October while the weighted average date principle does not do that.

Hope it helps,

Ludwig

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Guy Terry 28,913 Moderator on at

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RE: Weighted average vs. Date weighted average

Hi ivan6000,

All the actual costing methods (except Moving average) initially work the same way - the current running average cost price is used to estimate the cost of an issue transaction (e.g. a sales order, production order consumption or a transfer out).

The difference comes in what happens during the Inventory close process.

Weighted average will use the value of all of the receipts in the period (plus the value of whatever was on hand at the start of the period) to calculate an average cost for that period. It will then assign that average cost to every issue transaction that was made. i.e. all issues of an item in the period will have the same cost.

If you're into accounting speak, this is a Periodic weighted average.

Weighted average date does the same, except that it makes an average of the cost for each day. i.e. It will use the value of all of the receipts on one day (plus the value of whatever was on hand at the start of the day) to calculate an average cost for that day. It will then assign that average cost to every issue transaction made on that day.

If you're into accounting speak, this is a Perpetual weighted average which is applied retrospectively.

Although that second explanation makes the process of both costing methods sound the same, the result is quite different. Weighted average gives you an average cost for the whole period, based on the receipts in that period. Weighted average date gives you a daily cost, which could be much closer to the cost of individuals POs or production orders.

You may also want to consider the technical details about how AX assigns the weighted average cost to each issue. Both methods create extra inventory transactions during Inventory close, but weighted average date has to create more, and inventory close may take a bit longer to run as a result of using this method.

The best learning tool for this topic, I find, is a Hand on Lab called 'Costing and inventory valuation'. You should be able to find it on Customer/PartnerSource. Once you understand the terms receipt, issue and settle it becomes much easier to investigate this topic.

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ivan60000 on at

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RE: Weighted average vs. Date weighted average

Thanks Ludwig

And what is happened when inventory issue is the end of month (30 or 31).

Regarding your example. What is happened?

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Ludwig Reinhard Microsoft Employee on at

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RE: Weighted average vs. Date weighted average

Hi ivan60000, If the issue occurs on 30 or 31 in the simplified example used, you will not see a difference in the weighted average and weighted average date values calculated provided that you regularly close your inventory. Best regards, Ludwig

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ivan60000 on at

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RE: Weighted average vs. Date weighted average

Hi Ludwig

Many thanks for your answer.

If I have correctly understood, my company does monthend inventory closing, and there is not impacted on the values caluclated between weigted average and weighted average date? The result will be the same at the end?

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Ludwig Reinhard Microsoft Employee on at

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RE: Weighted average vs. Date weighted average

Hi ivan60000, Yes. If you are not backdating transactions and do not have any other adjustments implemented both methods should give you the same result. Ludwig

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