Adjust Cost - item entries when using standard cost

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Posted on by Morten_DK

We have setup our NAV system for standard cost for all items. I am coming from a SAP company and is new to NAV.

I don't really understand the reasoning behind the adjust cost item entries. If I take a raw material with a standard price of 100 and I get an invoice of 101 then I get a price variance of 1, the average price will be 101 (if first aquisition), but the standard cost is still 100.

Then I use this material on a production order - here I would expect that the raw material will cost 100, which it also does, but when I run adjust cost item entries it adjust for the 1, meaning 101 in total equal to actual cost. Then I once again get a variance which was already booked once. The adjustment is between the inventory and goods in progress.

Am I missing the big picture here?

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Answers (1)

Michael Intravartolo 5 on at

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RE: Adjust Cost - item entries when using standard cost

Hello,

This article may not have the exact answer you are looking for but since you're new to NAV I thought I'd share: Adjust Cost - What is it and why you need it.

Best of luck and I hope this helps!

-Michael
Michael Carr CPA 115 on at

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RE: Adjust Cost - item entries when using standard cost

Based on the your descriptions something else to consider.... NAV 2013-Nav2018 creates a lot of balancing entries and that is included when Adjust costs are run -- these are primarily caused by rounding issues between the BOM's , Production orders , standard cost rollups etc. Exists (IMHO) due to the structure of posting entry build up as each line of a (fill in your favorite) order. each line creates a separate debit/credit entry and DOES NOT look at the order as a whole so based with so many decimal setting imbalances occur and I believe these creates the need for adjusting costs. In my experience creating assemblies orders generated @ 45% of the WIP postings as balancing/adjusting entries. Whether you are seeing this I don't know.... but it can create confusion.

Steve Chinsky sent you a snippet of a file showing the entries as created by NAV for production and sales orders. One way to improve knowledge is to create a grid of your own based on your system setup and trace thru your transactions and map out what's your system is doing. when you are done you will understand it all better.

Theoretically , I have never come up a reason you would need a run to Adjust Costs IF you are on Std Cost for ALL PARTS but with NAV/BC , Do NOT think it unnecessary. Due to the structure of the database and code you do. I have scars still from thinking it was unnecessary. YOU MUST.
Michael Carr CPA 115 on at

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RE: Adjust Cost - item entries when using standard cost

Question: you are listed as a 2013 user , are you on R2 which was a separate release? If you are on R2 or R1 what is the release #. There was a bug in the early rev's of R2 which did nor add the quantity if you were posting expected transactions ( i.e. , posting purchase receipts) it did not count the qty of the purchase receipt but did count the purchase cost - thus incorrectly calculation the costs. So you may need to check with partner and see what rev level you are on. It's been 6 years but I remember that the code fix was incredibly simple like adding a comma.

I believe we were on 2013R2 release 11 and it was fixed in a subsequent release of 2013R2 and later,

Hope this helps
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Community Member Microsoft Employee on at

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RE: Adjust Cost - item entries when using standard cost

Morten,

Yes. To see the entire picture, I am attaching every debit and credit for Purchasing and Sales and Production with Standard Cost employed and Expected Cost.

Thanks,

Steve

[View:/cfs-file/__key/communityserver-discussions-components-files/34/Production_2D00_Sales-Posting--_2D00_Std-Cost_2D00_Expected-On.xls:320:240][View:/cfs-file/__key/communityserver-discussions-components-files/34/Purchase_2D00_Sales-Posting-_2D00_-Std-Cost-_2D00_-Expected-On.xls:320:240]
Morten_DK 35 on at

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RE: Adjust Cost - item entries when using standard cost

Just to explain further.

If I understand it correct then when a production order is created we:

Credit: Direct cost applied with the amount of time consumed in terms of money

Credit: Applied overhead if any as in direct cost

Debit: Goods in progress

When the order is complete:

Credit: Goods in progress with full amount including variance

Debit: Finished goods with full amount including variance

Credit: Finished goods with variance amount - so now the inventory is valuated at standard cost price

Debit: Variance accounts (depending on which type of variance)

But then when we make a sales order:

Credit: Turnover accounts

Debit: Trade Creditor

Debit: COGS

Credit: Finished goods inventory account at standard cost

But then is what I don't understand on a particular order:

Credit: Finished goods inventroy account

Debit: COGS

This is done with an adjustment cost entries and source code "INVTPCOST".

If we have valuated the inventory as standard cost at the time of goods receipt by either production order or purchase order, then why is there a adjustment on the sales order also?
Morten_DK 35 on at

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RE: Adjust Cost - item entries when using standard cost

Thanks for your reply. It just seems to me that the variance is following through the supply chain as I also get an adjusted cost on sales orders, when the "Adjusted cost item entries" is run, which to me is not completely logical as that "violates" the standard cost principle?
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Community Member Microsoft Employee on at

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RE: Adjust Cost - item entries when using standard cost

Morten,

Your statement is exactly what Standard Cost will accomplish so you are seeing the big picture. You create a Manufactured Item, with a Production BOM and roll-up the BOM and Routing to set the Standard Cost. All postings thereafter, until you re-roll standard, will be that of the Standard Cost and any variances will be posted to the Variance Accounts noted on the Posting Setups, like the Purchase Price Variance you mentioned.

Thanks,

Steve
Morten_DK 35 on at

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RE: Adjust Cost - item entries when using standard cost

Hi Steven

Thanks for your reply.

I think I am failing to see the big picture, because using standard cost I don't want the correct amount of a goods in the BOM, I only want the standard cost. The deviation between standard cost and actual amount should be posted on time of goods receipt as a purchase variance and then the cost in the BOM should be the standard price?

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Community Member Microsoft Employee on at

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RE: Adjust Cost - item entries when using standard cost

Morten,

Best way to understand NAV posting is to explain each transaction. Here is an overview, by Transaction and the source. NOTE: In my posting flow below I have Expected Cost = TRUE.

Step	Transaction Description	Entry	Amount	Setup in	Setup Column	Details/Comments
1	Issue components to a Prod.	Dr. WIP	Standard Cost * Qty.	Inventory Posting Group	WIP Account	Per component item's Inventory Posting Group
	Order (Consumption Journal)	Cr. Inventory	Standard Cost * Qty.	Inventory Posting Group	Inventory Account	Per component item's Inventory Posting Group

2	Complete Finished Good	Dr. Inventory Account Interim	Standard Cost * Qty.	Inventory Posting Group	Inventory Account (Interim)	Per manufactured item's Inventory Posting Group
	(put FG item into Inventory using	Cr. WIP	Standard Cost * Qty.	Inventory Posting Group	WIP Account	Per manufactured item's Inventory Posting Group
	Output Journal)

3	Change Status of Production	Dr. WIP	Unit Cost * Qty.	Inventory Posting Group	WIP Account	Per manufactured item's Inventory Posting Group
	Order from Released to Finished	Cr. Direct Cost Applied	Direct Unit Cost * Qty.	General Posting Setup	Direct Cost Applied Account	Per Work or Machine Center's Product Posting Group
		Cr. Overhead Applied	Indirect Cost % and/or	General Posting Setup	Overhead Applied Account	Per Work or Machine Center's Product Posting Group
			Overhead Rate * Qty.
						*Once the status is changed to Finished, no additional
						costs may be posted to the Production Order.
4	Run Adjust Cost - Post Cost	Dr. WIP	Actual Cost * Qty.	Inventory Posting Group	WIP Account	Per manufactured item's Inventory Posting Group
	Periodic Activities	Cr. Inventory Account Interim	Actual Cost * Qty.	Inventory Posting Group	Inventory Account (Interim)	Per manufactured item's Inventory Posting Group
		Dr. Finished Goods	Actual Cost * Qty.	Inventory Posting Group	Inventory Account	Per manufactured item's Inventory Posting Group
		Cr. WIP	Actual Cost * Qty.	Inventory Posting Group	WIP Account	Per manufactured item's Inventory Posting Group
		Dr. Finished Goods	Actual Cost * Qty.	Inventory Posting Group	Inventory Account	Per manufactured item's Inventory Posting Group
		Cr. Material Usage Variance	Actual Cost * Qty.	Inventory Posting Group	Material Variance Account	Per manufactured item's Inventory Posting Group
		Dr. or Cr. Raw Mat. Inventory	Actual Cost * Qty.	Inventory Posting Group	Inventory Account	Per component item's Inventory Posting Group
		Dr. or Cr. WIP	Actual Cost * Qty.	Inventory Posting Group	WIP Account	Per component item's Inventory Posting Group

		Dr. or Cr. Capacity Variance	Actual Cost - Std. Cost	Inventory Posting Group	Capacity Var. Account	Per manufactured item's Inventory Posting Group
		Dr. or Cr. Inventory	Actual Cost - Std. Cost	Inventory Posting Group	Inventory Account	Per manufactured item's Inventory Posting Group
		Dr. or Cr. Capacity Overhead Var.	Actual Cost - Std. Cost	Inventory Posting Group	Capacity Overhead Account	Per manufactured item's Inventory Posting Group
		Dr. or Cr. Inventory	Actual Cost - Std. Cost	Inventory Posting Group	Inventory Account	Per manufactured item's Inventory Posting Group

		Dr. or Cr. Material Overhead Var.	Actual Cost - Std. Cost	Inventory Posting Group	Material Overhead Account	Per manufactured item's Inventory Posting Group
		Dr. or Cr. Inventory	Actual Cost - Std. Cost	Inventory Posting Group	Inventory Account	Per manufactured item's Inventory Posting Group

As you can see, running Adjust Cost-Item Entries trues up all the WIP/Finished Goods/Manufacturing Variance associated with a Finished Production Order. NOTE: If you have consumed an Item and that Items Purchase Order has NOT been Post-Invoiced, it will use that components Unit Cost or Standard Cost until the Purchase Invoice is posted to update Actuals or Purchase Price Variance.

Hope this helps.

Thanks,

Steve