Hi All,

When we invoice an order, an entry is going into the cost of sales in AL, which of course we expect. We've defined where the cost of sales goes in the category codes and account sets of the items.

What I cannot figure out is how ledger/oe calculates the dollar amount to put in the entry. Can someone please help?

Thanks!

Cam

Hi Cam,

When Day End Processing is performed, the cost is determined from the costing method of the item and the amounts available for the (up to 5) costing lots from receipts. The costing method is determined from the assigned Control Account Set, and there are 5 different choices.

It's a bit of a discussion to go into detail for how each of the 5 methods work. But in general, Day End looks at the item and based on the quantity shipped and what unit costs are assigned to the item, the total cost that is assigned to the shipment and thus what goes to GL is calculated.

If the cost of the item is not what you expected, can you post what the costing method of your item is, and what information you see in Inventory for Item Inquiry with Sales/Costs and on the Costs tab for total qty on hand and total cost?

Both the control accounts are set to standard costing.

I see what is happening now. It is taking the qty shipped and multiplying that by the avg unit cost - this is what is going into the ledger.

The avg unit cost is simply the total cost divided by the qty on hand.

So my question then is how does Adagio calculate the total cost, in particular for finished goods that aren't received, but built (using item assembly and adjustments)?

Thanks!

Hi Cam,

There are a number of transaction types that could add or subtract from the Total Cost of an item. Naturally when you receive stock then the total cost is added to. When items are shipped then the total cost is subtracted from. It could also change if the item is adjusted or transferred to a different location or item code or used in an item assembly or qty changed in a physical inventory update.

Total cost is simply a number than when a transaction is created that affects the item cost, the amount either increases or decreases. There is no 'complete recalculation' of the Total Cost based on all existing historical or outstanding transactions.

For item assembly, if the item is a component then the total cost will decrease. If the item is a bill of material (master item) then the total cost will increase.

For adjustments, each transaction has an increase or decrease setting that determines whether the total cost is added to or subtracted from, assuming that the cost is also selected to adjust.

So what cost will Adagio use if the item uses standard costing, and there is no average cost for the item?

Also, is there a way to reduce the cost base for an item without writing it off to a certain account?

Thanks!

Cam

If there is no cost and no quantity on the item (and quantity is allowed to go negative), then the Most Recent Cost is used for the unit cost.

If there is positive qty and zero cost on the item - which really is a problem in how the item has been handled and likely adjusted - then it is probable that the cost will be zero. Anything multiplied by zero will be zero.

If quantity on hand is not allowed to be negative, then the shipment will not allowed to be processed in the first place, so there is no concern of what a potential calculated cost will be.

Is there a particular problem you are running into? If so can you provide some of the specifics as to what program you are shipping items from, the cost that is being generated, the cost you thought you should see, and the precise qty on hand and total cost of the item? Thanks.

Hi All,

I need to revisit this problem again with an example of an item that has a problem.

The total qty on hand 248, and the total cost is $177,582.65, making an average cost of $716.06. I know that the actual cost of this item is $19.45!!! Obviously costs are being added to the pool and not being taken away, or added at a much higher rate than being taken away.

I know for a fact that there was a problem with the way someone was entering production for this part - they were using adjustments instead of assemblies (using bills of material).


How can I reduce the cost base?

Enter an adjustment to the cost after you have run dayends in OE and POA.

Though Andrew's suggestion will fix the problem the trick is to figure out how it got this way in the first place so that you can prevent it from happening again.

Are you using Moving Average costing? Is it possible that your other issue was not fully resolved as you thought?

Unfortunatley "how this occurred is hard to answer without seeing the data".