Hello Folks,
I would like to understand the significant difference between Weighted average and Moving Average costing method in D365 finance and operation. Please note i am not talking about "weighted average date" .
Would appreciate if someone can explain with business cases. In which particular scenario we should use moving average and where to use weighted average and what is best recommended costing method if we have to choose one.
Thanks.
Hi DynaManufacturing,
The inventory closing is indeed a major difference. This is also highlighted in the comments from Ludwig where he mentions about a requirement for backdated transactions. With weighted average, there is an option to recalculate the inventory transactions to adjust the costs on outbound transactions as per valuation model. With moving average this is not possible. With moving average, you can only revaluate the current inventory value.
People like to use the moving average above the weighted average for the simple reason that they don't have to use the inventory closing, but everything comes with a price... (learned this from Rumpelstiltskin). Backdated transactions will only change the actual average costing with Moving average. When you sold items before you posted a purchase invoice with the correct price, the sales transaction might have an incorrect cost and the difference will be posted to a profit and loss account.
Thank you Ludwig for your feedback.
As far as i know one significant difference is inventory closing. If item is on moving average, Inventory closing doesn't affect anything or generate any adjustment transaction. Is my assumption correct?
From a valuation perspective there is probably not a big difference in the methods that you mention unless you backdate transactions or post them in future periods on a regular basis.
Personally, I have not seen many companies using the 'simple' weighted average principle. The moving average principle seems to be more often used but that is only my impression.
For more information on how the values are calculated, have a look at the following sites:
docs.microsoft.com/.../moving-average
Best regards,
Ludwig
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