Adjusting Unit Cost for an Average Cost Product
Aptify modifies the Average Cost of a product only when a new Purchase Product Inventory Ledger Entries (PILE) is added for the product. This means that reversing a Purchase PILE with an Adjustment PILE does not recalculate the product's Average Cost. Therefore, the process for adjusting the unit cost for an Average Cost product is different than the process for LIFO (Last-In First-Out) and FIFO (First-In First-Out) products.
Follow these steps:
- When units are received that have an unknown cost, do not create a Purchase PILE. Instead, create a positive quantity Adjustment PILE. This allows an organization to add the units to the inventory without impacting average cost until the actual unit cost is known.
- If this is the first shipment of the product to be entered in the system, do not add the inventory for this product until you know its actual cost. Any units added on a positive quantity Adjustment PILE which is the product's first PILE will have a $0 average cost.
- Be sure to change the Type to Adjustment and enter a positive quantity.
- When the final cost is known, calculate the expected average cost of the product. You also need to identify how many units have shipped in the interim period. This is because you will need to create a manual adjustment to the General Ledger to update the Cost of Good Sold and Inventory accounts with the correct average cost.
- When the final cost is known, create a negative quantity Adjustment PILE to remove all of the units from the positive quantity Adjustment PILE.
- Specify the original positive quantity Adjustment PILE ID in the Original PILE field.
- Change the Type to Adjustment.
- Enter the number of units to remove as a negative Quantity.
- Create a Purchase PILE to add the units back into inventory using the actual Unit Cost.
- Leave the Original PILE field blank.
- Leave the Type set to Purchase.
- Enter the number of units to add back into inventory in the Quantity.
- Enter the actual unit cost in the Unit Cost field.
- Create a Scheduled Transactions record to adjust the COGS and Inventory accounts if any units have shipped between the time that the units were originally added to inventory and when the actual cost was known.
- Click the Product Inventory Ledger Entry Transactions tab on the new Purchase PILE you created in the previous step.
- Open a new Product Inventory Ledger Entry Transactions record and click the Scheduled Transactions link to open a new Scheduled Transactions record.
- Enter the date and description, and select Other as the Type.
- Create counterbalancing GL entries to debit or credit the COGS and Inventory accounts used by this product in the amount of the adjustment. Contact a member of your accounting department if you need assistance and to determine the amount of the adjustment.
- Need more here. Is this necessary? When? How? Is this even reasonable given that the average cost is a moving target?
- Save and close the Scheduled Transactions record when finished. Also, confirm that it is properly linked to the Purchase PILE for record keeping purposes.
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To identify a product's current average cost, add the CurrentAverageCost field to a list view of the Products service.
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