Adjusting Inventory Cost Variances

Depending on the nature and the reason for the variance, you may or may not want to make adjustments to inventory to reflect the actual cost invoiced.

If you enter the goods received before receiving the vendor's invoice, the Inventory Management system will base the unit cost on the original purchase order, not the current cost as reflected on the vendor's invoice.

Variation in unit cost can be caused by changes in the price of goods purchased; this may be valid or may be a mistake by the vendor. Variations in quantities can be caused by data entry errors in Receipt of Goods Entry or by a vendor error, such as the double billing of an invoice. If the variance in cost is due to an error on your part, an inventory adjustment should be made to ensure that the Inventory Management module uses the correct cost information.

Any cost variance for items listed on the Receipt/Invoice Variance Register can be corrected as an adjustment in the Inventory Management Transaction Entry window. The adjustment procedure is different depending on the valuation method used for each item.

You must enter two adjustment lines per item. On the first line, enter the receipt quantity as a negative number and the unit cost that was used for the receipt (refer to the Unit Cost/Received column of the Receipt/Invoice Variance Register). On the second line, enter the positive quantity on hand and the new unit cost amount (refer to the Unit Cost/Invoiced column of the register). You must be sure, however, that the negative and positive adjustments are made against the same cost tier (the receipt date and reference for LIFO, FIFO, lot number, or serial number for lot and serial items). The unit cost for the negative adjustment is set to the old unit cost automatically and cannot be changed.