Correction of Inventory Cost
Inventory valuation is important for any manufacturing and trading business. The stakeholders would be Cost Accountants, CFOs and investors. Further, Inventory cost is the major budget element.
Recently, we had a client raise the issue of cost price of inventory items not getting correctly calculated because of the following factors:
- Negative physical and financial Inventory enabled since orders are placed continuously
- Purchase prices of items fluctuate frequently
- Back dated inventory entries passed in the system.
- Weighted average cost method selected for inventory valuation in place of Standard Cost or Last Price.
Steps to be followed:
- Go to Inventory Management => Closing & Adjustment=>Adjustment=>Transaction=>Select=> Item details.
2. Go to Adjustment=>Fixed Price
3. It will show inventory transactions as per the selection criteria, with their quantity and cost price.
4. Click on Fixed Price and put the approved cost price per unit for the item variant.Click on the post button.
5. There will be a posting entry in Closing & Adjustment tab.
6. Run recalculation for the item as on the cost price date.
7. Review the Inventory Aging report or Inventory transaction report. The updated price must be reflected.
8. Recalculation can be run together after updating individual item’s cost price.
9. This must be done prior to the running inventory month close.
Conclusion :
This process should be an integral part of inventory valuation. Correct inventory valuation would ensure correct cost of goods sold (COGS), gross profit (GP) and cost value of asset in Balance Sheet.
We hope you found this blog useful, and if you would like to discuss anything, you can reach out to us at transform@cloudfonts.com.
