AGRIS Customer Documentation
Cost Adjustment: Best Practice, Why they Happen, and Examples
Cost Adjustment: Best Practice, Why they Happen, and Examples
Table of Contents
Cost Adjustment: How-To Best Practice
There are 3 basic requirements before a cost adjustment is run. These will ensure the process will not be interrupted and will be accurate. At this point, all verification of the quantity and value of inventory should be complete.
Make sure all daily work is done
Make sure everyone is out of AGRIS
Do a backup or make a copy of your dataset
Option 1: Adjust Cost for Usage
Main option to choose when running cost adjustment
This option is the balancing routine between the inventory line item detail that flows to the ledger (INVTRAN1) and the total record for each item/location that is balanced to the ledger (INVTOTAL) files
Creates a transaction in activity file to drive to the ledger
Option 2: Adjust Cost to Market
Changes the overall inventory value to the lower of cost or market price
Used when a company is being sold and needs a way to revalue inventory to the agreed upon purchase price
Will change the value in the average cost field to match the value entered in the market cost field
WARNING: The market cost field must be maintained or it can zero out the average cost on the item
There is a Y/N question in INV > Setup > General Information > Screen 1 that allows you to turn OFF the adjust cost to market option
Instructions for Both Options
OK through the warning screen to make a backup- this is the waiver that you understand the only fool-proof recovery from a cost adjustment error is a backup
Select 1. Calculate Report and Create Entries
This will start the process of the cost adjustment
Print only items which have an adjustment?
This defaults YES so the report is as small as it can be, but to see all detail, answer No
Print detail for items which have an adjustment?
Defaults to Yes- Always answer Yes to this question.
Provides detail to determine if a cost adjustment was accurate, if one is questioned. Without this detail, there is no way to research other than restoring from backup and starting over
Ledger Date
The date the cost adjustment transaction will be posted to
Normally the last day of the accounting month
Will flow to the ledger when SJI system entries are processed
Other Ref
Field name determined in Inventory setup
Can be called any name, but is 8 character field to key any information to attach to the transaction, such as the user running
Select the printer
Always send to the spool!
Sending to the spool will remove any chance of losing it due to printer error
Never delete it from the spool for at least 1 year, if you must, save it to another location
This is the only research tool if you do not agree with an adjustment
Example of Cost Adjustment for Actual Usage Report
The values are calculations based on activity during the period of time selected
Beginning Value = ending value from last cost adjustment
Ending Value = inventory value now + active delivery tickets
Ending Less Beginning = ending value - beginning value
Transaction Change Amount = transactions for the cost adjustment period
Cost Adj Amount = Ending less beginning - transaction change amount
Manual Edit Amount = amount of manual edits to the total file
Some of these values appear on the inventory item master balance screen in order to aid research
How Cost Adjustments Happen
The table that holds inventory totals (INVTOTAL or I14_TOTALS_INVENTY) has a balance that does not add up to the table that holds the document line item detail (INVTRAN1 or I04_INV_TRAN and INVTRAN7 or I23_STK_ADD_CHG_DT)
The cost adjustment works on the rule that INVTOTAL is always correct
If INVTOTAL does not match the non cost adjusted INVTRAN1 and INVTRAN7 detail, then it needs an adjustment to make the detail match the total
This makes a dollar-only adjustment to the INVTRAN1 file that then affects the Inventory Activity Summary Report and flows to the ledger
INVTOTAL or I14_TOTALS_INVENTY viewed under Inventory > Item Maintenance contains the current inventory value/count, or is also visible from the front screen of inventory status inquiry
INVTRAN1 or I04_INV_TRAN and INVTRAN7 or I23_STK_ADD_CHG_DT viewed under Inventory Status Inquiry contains all the line items from invoices, stock additions, etc
The * column specifies if the transaction has been through a cost adjustment. Blank means the transaction has not
Based on the highlighted numbers above, the cost adjustment equation becomes:
Beg Value + Non-asterisked transactions + active delivery tickets = LDG Detail
$46,980 + $4,900 + $0 = $51,740
Current Inventory Total – LDG Detail = should be zero
$60,000 - $51,740 = $8,530
So this means there will be a positive cost adjustment for $8,530, making the ledger detail $51,740 + $8,530 = $60,000
Why a Cost Adjustment May Have Occurred
Negative inventory was brought back to zero or positive position
When inventory goes negative, the cost is locked into the last known positive value cost
When the quantity on hand comes back to positive, the inventory value is reset to match the quantity on hand
The cost adjustment will make up for the cost taken while the item was locked into that single cost
Manual Edit to the INVTOTAL file through view/edit
Lock up error that caused INVTRAN1 or INVTRAN7 file to update line items and not INVTOTAL
Changing the unit of measure (UOM) of an item without changing the average cost
Cost adjustment that errored out, leaving line items partially marked with asterisks
If you do NOT restore from backup, the cost adjustment starts counting the activity detail from the last non-marked transaction, ignoring anything that already has an asterisk on it
Ledger Effect of a Cost Adjustment
The cost adjustment will debit the inventory asset (IV) and credit cost of sales (CS)
What if I do not agree with the Cost Adjustment?
Research the issue to determine why you do not agree with it
This is where having a copy of the cost adjustment report will be helpful
Without this report, we can only guess what happened during the cost adjustment
If you still feel the adjustment is wrong, a manual ledger entry is the only option
Make a manual ledger entry in the opposite dollar amount of the adjustment that flowed to the ledger
Examples: Testing Cost Adjustments
Example 1: Going Negative in Stock
Setup a new fertilizer item
Add a stock addition for 25 tons at $100 a ton
Run a cost adjustment
Do a “Begin New Day” process
Enter an invoice for 50-tons of product
Run a cost adjustment
Be sure to print ALL items, even ones without cost adjustments. Note why the item was not cost adjusted and the detail that was included
Begin a new day
Enter another stock addition for 50-tons at $300 a ton
Run another cost adjustment for all detail. Note the adjustment taken to recover the cost on the sale of inventory that went below negative quantity on hand
Example 2: How Delivery Tickets Affect Cost Adjustment
Setup a new seed item
Add a stock addition for 25-bags at $50/bag
Run a cost adjustment.
Do a “begin new day”
Enter a delivery ticket for 15-bags of seed.
Run a cost adjustment. Note the delivery ticket value added back to the beginning value.
Begin a new day.
Invoice out the delivery ticket.
Run the cost adjustment. Note the difference in the detail that prints and how the invoice is now listed as a document
Example 3: How Edited Stock Additions Affect Cost Adjustment
Setup a new fertilizer item.
Add a stock addition for 25-tons at $10/ton
Invoice out 25-tons of product.
Run the cost adjustment.
Begin New Day
Realize that the fertilizer should have been at $500/ton.
Edit the stock addition voucher to adjust inventory value.
Run the cost adjustment. Note that effect of zero quantity on hand.
The cost adjustment removes the dollars from the asset and drives them to cos
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