Valuation Methods - AVG vs. Order Price

SOLVED

Hello,

We have an issue with our system where in for Work Orders, the Raw Materials are being posted to the G/L on the valuation basis of Historical AUC (Avg cost), but the Finished Good is being applied to the G/L based on a different valuation method (It is using cost source = ORDER PRICE), which is neither standard cost nor average cost. My guess is that this is the real purchase price of all the raw materials used in production. However, the finished goods should be posting Historical AUC (or REAL cost price).

All the product-sites have the correct valuation methods of AVC, so I'm wondering where the trigger is to change this so that there is some consistency in the Inventory sub-ledger balances.

The difference between the so-called "STANDARD" (or Order Price)  and the REAL cost price (rolled up average costs of RM's) is applied to WIP inventory and must be reconciled at the end of the month, which takes a while. 

Does anyone know how to change this and what point in the system that this is triggering?

Thank you.

  • 0
    Did you solve this? We are having similar problem?
  • 0
    verified answer
    Hi Mike,

    I'm back again. :)

    When finished goods make it into stock, even though you have the receipt cost valuation method set to AVC in the product-site record, the cost posted is (most likely - there are a lot of configuration parameters to take into account) based on the average cost of materials at the time the work order was created. Average unit cost is a valuation method only applied to stock issues - not receipts, as is the case with production receipts.

    Are you fully closing your work orders when they are completed? When all of the products have been received into stock, the WO will be set to 'Completed', but the produced goods will still have the cost mentioned above, calculated when the WO was created. To include the real costs, you need to run the Production Cost Price calculation (function FUNWIPMFC), which will take all actual costs and include those in the final cost of the produced goods. You can also run this production cost price calculation by closing the WO in function FUNMCLOSE.

    Calculating the production cost price will only post to the inventory GL account, though, if the stock is all there. If the stock has moved on, the cost variance will be posted to the variance not absorbed account (configured in the accounting code associated with the product). You can include this variance in the stock account by running the cost adjustment function (function FUNSTKADJ), but I have encountered problems with this adjusting the stock cost for production receipts. I think there is a bug in the code that I am trying to sort out with our business partner. I can give you the code location as well if you like, although be prepared for a big information dump. I've spent a lot of time trying to sort this out and I could probably bore you to tears with details. If this post hasn't done so already. :)

    So in short, I think the best first step for you is to check whether you're closing WOs and therefore running the production cost price calculation. Then we can decide where to go next.

    Cheers,
    Ben.
  • 0 in reply to bbarnes
    Nice post Ben, and I am not crying at all!

    It is well explained how things work behind the curtins. Thanks.
  • 0 in reply to bbarnes
    Thanks Ben, a little late on the response lol but essentially I figured out the logic of the accounting journals as you explained shortly after posting this last May. I couldn't figure out what triggered the Variance not absorbed balances, but I figured it out eventually.

    Thanks,

    Mike
  • 0 in reply to Mirabelli7
    Hahahaha whoops. I missed the date that would have told me I was posting out of date jibber-jabber.

    Although Martins (or is it Rui - sorry I don't know which is your first name) seems to have found it useful. Glad to help, and to not bore you to tears. :)
  • 0 in reply to bbarnes

    I have a similar situation, order price came in at 19.08 for 651 items , stock was zero. The assumption is the average price would be 19.08 however on carrying out sales transactions the average cost was down to 13.77, I did not understand how I got to that , as later in the month the valuation price was 20.31 (which is the real cost for the work order receipt with 651 items). Trying to figure out were the variance not absorbed came from as well.

  • 0 in reply to bbarnes

    Gentleman, got back to this, and if this thread is very good help.