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Nov 09, 2018

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Physical Count

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Physical Count

© All Rights Reserved

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Inventory Costs

AccountMate 7 for SQL, Express and LAN

AccountMate 6.5 for SQL, MSDE and LAN

Module(s) Affected: IC

DESCRIPTION

inventory items are properly accounted for and inventory valuation is accurate.

Sometimes there may be a variance between the recorded and the actual inventory

item on-hand quantity. In AccountMate, the system adjusts the on-hand quantity

and inventory cost, depending upon the type of physical count variance.

This Technical Note discusses the inventory cost adjustment calculation and the

adjusted inventory cost.

Definition of Terms

Below is a definition of terms based upon their usage in AccountMate and in this

document.

• Average cost - This is the cost amount calculated by dividing the total cost of

an inventory item by its on-hand quantity. This is the amount shown in the

Inventory Maintenance Æ Settings tab Æ Average Cost field.

• Unit cost - This refers to the cost of an inventory item upon purchase order

receipt or during inventory adjustment.

SOLUTION

A physical count variance occurs if there is a difference between the recorded on-

hand quantity and the actual counted quantity of an item. A physical count variance

may either be a negative count variance or a positive count variance.

Positive Count Variance

A positive count variance occurs if the recorded on-hand quantity is less than the

actual counted quantity. This may occur if there are unrecorded purchase receipts

from vendors or sales returns from customers.

A negative count variance occurs if the recorded on-hand quantity is more than the

actual counted quantity. This may be a result of lost, spoiled, or damaged inventory

items.

AccountMate recalculates the inventory item cost when you update its on-hand

quantity using the Update Physical Count function. AccountMate uses either the

average cost or the unit cost to calculate the inventory cost adjustment depending

on the cost method assigned to the item and the count variance type. Below is an

explanation of how AccountMate calculates the inventory cost adjustment and the

adjusted inventory cost.

AccountMate uses the inventory item’s average cost at the time you update its on-

hand quantity if the cost method assigned to an inventory item is Average or

Average with SN.

For example, an inventory item has 150 units on-hand with a total cost of $1,500.

The average cost is $10 per unit. The adjusted inventory cost is $1,550 if the

physical count results in a positive count variance of 5 units, calculated as follows:

Inventory cost adjustment:

Average cost $10

Quantity variance X5 50

Total cost after adjustment $1,550

The adjusted inventory cost is $1,400 if the physical count results in a negative

count variance of 10 units, calculated as follows:

Inventory cost adjustment:

Average cost $10

Quantity variance x (10) (100)

Total cost after adjustment $1,400

FIFO (First-In First-Out)

AccountMate uses the inventory item’s average cost at the time you update its on-

hand quantity if the cost method assigned to an inventory item is First-In First-Out

and if the physical count results in a positive count variance. On the other hand, if

the physical count results in a negative count variance, then AccountMate uses the

inventory item’s earliest unit cost to calculate the adjustment.

For example, an inventory item has 25 units received in the following order: first PO

receipt of 15 units at $100 each; then, a second PO receipt of 10 units at $50 each.

The total inventory cost is $2,000 with an average cost of $80 per unit. The adjusted

inventory cost is $2,400 if the physical count results in a positive count variance of 5

units, calculated as follows:

Inventory cost adjustment:

Average cost $80

Quantity variance X5 400

Total cost after adjustment $2,400

The adjusted inventory cost is $450 if the physical count results in a negative count

variance of 16 units, calculated as follows:

Inventory cost adjustment:

Quantity variance: 15 x $100 (earliest unit cost) $1,500

Quantity variance: 1 x $50 $50 (1,550)

Total cost after adjustment $450

AccountMate uses the inventory item’s average cost at the time you update its on-

hand quantity if the cost method assigned to an inventory item is Last-In First-Out

and if the physical count results in a positive count variance. On the other hand, if

the physical count results in a negative count variance, then AccountMate uses the

inventory item’s most recent unit cost to calculate the adjustment.

For example, an inventory item has 25 units received in the following order: first PO

receipt of 15 units at $100 each; then, a second PO receipt of 10 units at $50 each.

The total inventory cost is $2,000 with an average cost of $80 per unit. The adjusted

inventory cost is $2,400 if the physical count results in a positive count variance of 5

units, calculated as follows:

Inventory cost adjustment:

Average cost $ 80

Quantity variance X5 400

Total cost after adjustment $2,400

The adjusted inventory cost is $900 if the physical count results in a negative count

variance of 16 units, calculated as follows:

Inventory cost adjustment:

Quantity variance: 10 x $50 (most recent cost) $ 500

Quantity variance 6 x $100 600 (1,100)

Total cost after adjustment $900

Specific ID

AccountMate uses the inventory item’s average cost at the time you update its on-

hand quantity if the cost method assigned to an inventory item is Specific ID and if

the physical count results in a positive count variance. On the other hand, if the

physical count results in a negative count variance, then AccountMate uses the

item’s specific unit cost that are no longer on-hand to record the adjustment. You

may refer to the Specific ID Listing report to determine the inventory item’s unit

cost.

For example, the recorded quantity of an item consists of the following: a PO receipt

of 15 units at $100 each and an inventory adjustment of 10 units at $50 each. The

total inventory cost is $2,000 with an average cost of $80 per unit. The adjusted

inventory cost is $2,400 if the physical count results in a positive count variance of 5

units, calculated as follows:

Inventory cost adjustment:

Average cost $80

Quantity variance X5 400

Total cost after adjustment $2,400

The adjusted inventory cost is $650 if the physical count results in a negative count

variance of 16 units comprise of 11 missing units from the PO receipt and 5 missing

units from the inventory adjustment, calculated as follows:

Inventory cost adjustment:

Quantity variance : 11 x $100

$1,100

(unit cost from PO receipt)

Quantity variance : 5 x $50

$250 (1,350)

(unit cost from inventory adjustment)

Total cost after adjustment $650

You can record the positive count variance using the Inventory Adjustment function

if you want to use the unit cost instead of the item’s average cost to adjust its

inventory cost.

AccountMate uses the item’s average cost at the time of the update to calculate the

inventory cost adjustment if the physical count results in an increase in the recorded

on-hand quantity. On the other hand, AccountMate uses either the average cost or

the unit cost depending upon the Cost Method assigned to the item if the physical

count results in a decrease in the recorded on-hand quantity.

variances exist. The information in this document is provided to help you understand

how AccountMate calculates the adjusted cost for inventory items with physical count

variances.

This information is provided "AS IS" without warranty of any kind. AccountMate

Software Corporation disclaims all warranties, either express or implied. In no event

shall AccountMate Software Corporation be liable for any damages whatsoever

including direct, indirect, incidental, consequential, loss of business profits, or special

damages, even if AccountMate Software Corporation has been advised of the

possibility of such damages.

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