Standard Cost v. Current Cost: GP 9

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Posted on by Deanna Oaks

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Okay, I'm clunking away and I notice that my inventory has some really weird values, some of which are throwing out some huge variances, and I can't figure out what is going on. I need help.

Here is my situation. We are valuing our inventory using FIFO perpetual, we have the Revalue Inventory for Cost check box checked and a tolerance of 0%. From what I have been reading, this should make it so that the inventory current cost should be relatively close to the standard cost if you buy items that are relatively the same price. Yet, whenever my inventory goes into the negative due to human error, the standard cost jumps sky high and we end up with valuation problems on the stock status reports. (Inventory Activity Report - Historical Stock Status)

I don't know how to fix the problem, as we can't adjust pricing on negative inventory transactions, and if we add inventory, it makes our stock counts incorrect.

Can someone explain to me how this works?

Thanks!

Deanna Oaks

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Frank Hamelly | MVP... 46,625 Super User 2025 Season 2 on at

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I'm confused Deanna. If you're using the FIFO Perpetual valuation method, you're not on Standard Cost. Did you mean FIFO Periodic?

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Deanna Oaks 240 on at

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I double checked and we are using FIFO Perpetual. Since I asked the question yesterday, I've been digging.

My main problem is the Historical Stock Status reports. I had this one item with 14 units on hand on 7/31/09 that were worth $25.05 each. Then on 8/3/09 we had a production batch (handled by a secondary software package integrated with GP) which used 21 units costed at $274.75667 each - the 14 units at 25.05 and 7 units at $680.53010. (The cost of $680.53010 was picked up from the last increase to stock, but this was a data entry error (not corrected) and consisted of 1 unit adjustment in May 2009.) Then, on 8/4/09; two production batches was entered prior to the receipt of goods: 540 units at a unit cost of $680.53; 21 units at a unit cost of $680.53. Then we corrected the batch my decreasing stock by another 1 unit at a unit cost of $680.53. Then on 8/4/09 stock corrections were made: 540 units added to inventory at a unit cost of $680.53. This left us with a negative stock count of 29 units. Then the receipt of goods was entered for 100 units at a unit cost of $23.27.

Historical stock status report for 7/31/09 shows 14 units at a unit cost of $1,433.3371 each; Historical stock status report for 8/7/09 shows 71 units at a unit cost of $23.27 each.

How did the Historical Stock Status for July spit out the unit cost of $1,433.3371 when all the "weird" transactions happened in August? Then, how did it get that high of a unit cost in the first place? I ran the report both with historical cost and current standard/average cost and arrived with the same result.

This makes my inventory valuation questionable!!! I need help!

Thank you, Deanna Oaks

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zelleay 115 on at

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Hi Deanna,

Do you have 3rd party programs that might affect inventory costs? Please verify.

Also, try using Purchase Receipts Inquiry in reviewing true value of your inventory. From there you may check receipt transactions of your items that have affected the final inventory cost. Supposedly, since you are using FIFO perpetual valuation, the last transaction for your items should be the final cost. The most recent transaction might have typo errors on the numbers the user entered thus causing cost to change to a million.

Remember to sort Purchase Receipts inquiry according to document date (w/c is the default anyway).

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Deanna Oaks 240 on at

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Our 3rd party software downloads the standard costs of raw materials from GP (at the time of batch posting) and rolls all material costs into the finished goods costs, and posts that amount back into GP as the finished goods cost. While it does change the finished goods costs, the costing problem I am experiencing is with raw materials. Since GP uses the current cost for raw materials when the batch posts into GP (negative transactions have no cost override), a costing variance is created when the standard cost is different from the current cost. My standard cost field keeps changing, and I don't know what changes it. It does not seem to be an average moving cost, because even after higher costs are corrected, it does not always correct the standards. No one here changes the field - no one even knows where that field is - and I am unaware of anything running in the background to change it (my 3rd party assured me they do not make changes to GP information....).

I just need to know how the standard cost field is calculated when using FIFO Perpetual. I understand the current cost portion, but our 3rd party software does not use that field - only the standard cost field. I am afraid of manually going in and changing it, because if there is something that will recalculate it - all my changes will be in vain and I will be right back to pulling my hair out over this issue.

And in addition to this issue, I have the historical stock status report that can't keep its story straight either. Current period transactions are affecting prior period costs within that report.

Thank you for your input!

Deanna Oaks

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Ron Wilson 6,010 on at

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Deanna,

Our understanding of the Standard Cost, is that it is a controlled cost. There is nothing that will recalculate the Standard Cost automatically. We use standard cost so that we can control the base price of what our items are selling at (we sell with Margin % above Standard Cost in our price list).

The reason we do this is because, depending on when we buy raw materials, we may be buying in bulk or at a very lucrative time in our market and get a great deal. We do not necessarily want to pass that good deal on to our customer. We want to control what our selling cost is based on the true market value (which really is what you can sell the item for).

Not to reexplain what you already know but, let's say you buy 100 widgets for $1.00 and then another 50 widgets for $1.25. The way GP works using current cost is, based on your valuation method (we use FIFO Perpetual as well), your current cost will start out as $1.00. Your standard cost will be whatever cost you manually place in that field, let's say $1.10. After you have sold the 100 widgets, your CURRENT COST will be recalculated from $1.00 to $1.25. Your STANDARD COST, will however, will not be recalculate and will stay at the $1.10. Now your standard cost will be showing $0.15 less for the widget than your actual cost of $1.25. Now if you still have the 50 widgets at $1.25 and you have a price increase again and the same widget costs you $1.50, you can change the standard cost to $1.50 (or whatever you want) and sell off of that $1.50 while your current cost is still showing $1.25.

Does this make sense and answer your first question?

As far as the historical stock status report goes, I like to look at Inquiry->Inventory->Receipts to see what my actual cost in an item is. I am not sure why the Historical Stock Status report appears incorrect. It could be a number of things. Some ideas could be dropship purchase orders, inventory adjustments, etc.

I hope this helps a little.

Ron

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Deanna Oaks 240 on at

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Ron,

Thanks for the response. I understand what you are saying, and the manuals completely agree with your logic. However, I know for a fact that when transactions post in my system the BOTH the Standard Cost and the Current Cost fields update. I watched it happen, after hours with my log in being the only log in being used. I had a drum at $274.75 Standard Cost; $81.17 Current Cost. The actual cost was $23.27. When I saw that inventory transactions had posted at the incorrect amount, I posted negative transactions through the inventory module at the incorrect price, then I posted positive transactions for the correct price. When I was done, both the Standard Cost Field and the Current Cost Field read $23.27.

If what you are saying is correct, the standard cost should have stayed at $274.75. It did not. I am wondering why it changes if no one is changing it because everything I read tells me the same thing you did.

I am so lost!

Deanna

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Ron Wilson 6,010 on at

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Deanna,

My next two courses of action would be this:

1. Find out if you have any customizations that could be causing this behavior. If so, investigate to see if, in fact, that is the problem.

2. Do you have support incidents with Microsoft Support? If so, I would use one of your cases. Those guys are good (most of the time) and can get you answered much quicker than the forum on difficult items like this.

Ron

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Deanna Oaks 240 on at

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Ron,

Thanks again!

When GP issues need to be "escalated" from the initial help desk guy at our hosting company's offices, I know things are bad. When it gets bad, I post on this forum as well as keep my issue open with the hosting company. I've got 3 or 4 help desk people "working" on this issue (one of which has contacted Microsoft already), but I have no answer from anywhere at the moment. (I hate not having/being the IT department!)

I am trying to find out if we have any customizations - but we are using a hosting company that will only release this information to one person, and that one person isn't me. I've asked that one person to contact our hosting company, so we are in the que, we just don't know when it will be answered. As for the Microsoft Support - apparently we have to go through our hosting company to open support tickets, which they have already opened 2 for my issues here.

I'm glad to know that I am not going crazy and there should be something that is working in the background to update the costs. I thought for sure I'd read something incorrectly or had an incorrect perception of how the system should work.

Thank you!

Deanna

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Ron Wilson 6,010 on at

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Well best of luck. In GP can you access Tools->Customize->Customization Status? If so, that will tell you all the customizations you are running. You would be looking for a customizaion that is not of type "Modified Report". That would tell you if you have any customizations installed.

Your thinking is definately correct on the Standard Cost. I wish I could be of more help.

Ron

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