An adjustment was done to an inventory item for cost only.
Immediately before the adjustment the extended cost $8.88 per lb. The quantity on hand was 1,253.25 lbs at a valuation of $2,315.61 or a unit cost of $1.85

My first question is - why is the inventory valuation showing a cost of $1.85 and the transactions are being costed at $8.88.

An adjustment was done for $5,774.33 to bring the cost to the expected level. Only cost was adjusted not quantities. When this adjustment went in the extended cost went to $35.02 and the valuation is showing $13,774. I can not identify any other changes besides the adjustment, but even then it is not computing the way it was expected. To add further confusion when we look at the costing for the item it is calculating recent cost based on the last two receipted quantities and the adjustment does not seem to have cost for pricing purposes.

You should never do an adjustment for cost only unless there is a very good reason. Adjustments are normally done for both cost and quantity.

You should reverse the cost adjustment so that the item is back to its original valuation, then re-do the adjustment to both cost and quantity.

Hopefully you haven't sold or received any of the item in the meantime.

Steve

There was nothing wrong with the quantity only the cost. How would you adjust when the cost is incorrect. I believe what happened here is that an incorrect physical adjustment was done and the adjustment was an attempt to correct it.

If we did an adjustment for quantity and cost how would that affect the cost of the item.

My post showed how many different cost was being calculated. The avg cost was different from the cost being calculated on the shipments. How could this occur.

Maybe you're not using average costing for the item? Checking the costing method for the item in question. Adagio carries the averag cost of an item and displays it, even if another costing method is in use.

What I need to know is how should you adjust an item when the cost is wrong, but the quantity is correct.

Secondly Are there cost methods used for the valuation (item valuation report shows $7.05) and the cost which is used to adjust cost of sales (being done at $35.02). The recent cost is $5.50 and the cost prior to that receipt was $8.80.

The 'unit cost' on the Item Valuation report is any of the Average Cost, Most Recent Cost, or whatever you select for the 4 available costs to print as columns for the report. Then Total Cost is determined by multiplying the unit cost and the quantity on hand.

If you backdate the Item Valuation report, even by one day, then the 'unit cost' is calculated by taking the Total Cost as of that day and dividing by the quantity on hand as of that day (both calculated by taking the values as of today and adding or subtracting Historical Transactions for that item dated later than the report date). This is because Adagio Inventory does not store every Unit Cost for every date each time it changes. Only the current and next recent cost value.

If you ever post adjustments to Inventory, make a backup of the data prior to doing this. As Steve mentioned, there may be a very good reason to post a Cost-only adjustment, but the question arises as to how this happens (such as a previous incorrect Adjustment or Physical Inventory transaction requiring reversal).

What was the answer to Andrew's question - what is the Costing Method of the item? If shipments use a different cost than the Average Cost, then either your item doesn't use the Average Costing method, or the average cost at the time of the shipment was different than it is now - perhaps due to changing the total cost of the item and not the quantity, or changing the qty and cost and at a different ration than the average cost.

The costing method is FIFO.

What do you suggest should be the costing method.

This is really a question to address to your accountant. Many tax authorities do not allow a change to the costing method without permission.

Generally, average costing requires less attention to the timing of receipts and sales and would be recommended when the costs of your goods do not vary wildly between orders.