Hi,

I had a question regarding the cost price calculation. I am using the session 'Calculate Cost Prices' [ticpr2210m000] to calculate the product cost price by using the cost price calculation configuration: Ap, Cp, Lp and Si.

As I understand, when Ap is set as highest priority, then the cost price should be calculated as total purchase receipt amount divide by total received quantity regardless the inventory quantity on hand when the cost price calculated.

But, I have a example as below to show that the cost price is calculated based on weighted average:

1/3/2009 - Purchase Receipt 100 pcs with price 1.00
2/3/2009 - Production Issue 40 pcs
5/3/2009 - Purchase Receipt 200 pcs with price 2.00

Recalculate product cost price on 6/3/2009, the new cost price is 1.77. Based on my checking, the new cost price 1.77 is derived from:
60 with price 1.00
200 with price 2.00

Total amount: 460
Inventory on hand: 260

New cost price = 460/260 = 1.77

If my understand on Ap is not wrong, the new cost price should be 1.67
which is derived from:
100 with price 1.00
200 with price 2.00

Total amount: 500
Total received quantity: 300

New cost price = 500/300 = 1.67

Anyone can help?

Thanks in advance.

With Regards,
Jin Seong
:confused::confused::confused:

There is a setting in Purchase Order Parameters that controls how the average price is calculated.

There is a current discussion thread in manufacturing that gives details:
http://www.baanboard.com/baanboard/showthread.php?t=16764

Scott

Hi, Scott,

Thanks for the advice.

Actually we should use the weighted average method (based on 'Current Inventory' method) to calculate the average purchase price. However, we had used the system for many years and only detected this issue now. Can we change the setting to 'Current Inventory' now? If yes, then what is the impact to the stock value.

Thanks for the advice in advance.

With Regards,
Jin Seong

Jin Seong,

How are the Purchase Order Parameters in your system set right now? Your example suggests that they are presently set to use "Current Inventory" (weighted average) method of calculating the Average Purchase Price.

Has the parameter setting been changed recently? (Hopefully the parameter tables are being audited so that you can confirm whether there have been changes.)

If the parameters are set to use "Current Inventory", if they have not been changed and if you have only recently detected the calculation issue, I would say that :
the calculation has been calculated all along on "weighted average".
either the purchase order prices and the arithmetic formula happened to never cause a difference between the two methods or you never detected any differences.
In either case, you have no issues. The current calculation, and hence the inventory valuation, is correct.


If the parameters have recently been changed from "Purchases (Cum.)" to "Current Inventory", the concern would be whether the "old" Average Purchase Price was significantly incorrect according to "Current Inventory" (weighted average) calculation:

Others with better knowledge of the tables may have a different answer but I believe that the old avg purchase price is only maintained in the Item Master (tiitm001.avpr)
If my above understanding of the tables is correct, you could do a labor-intensive review of history, change tiitm001.avpr by GTM and then calculate/update cost prices. (I would not recommend this unless there are significant differences because unless your inventory turns are very low, normal processing will provide the necessary corrections.)


If the parameters are currently set to "Purchases (Cum.)" and you plan to change them to "Current Inventory" (weighted average):

Review the cost / purchase calculations manually for a reality check. Your calculations indicate "Current Inventory" method. Are there any bugs / unimplemented solutions?
Run session Equate Balance of Receipts with Inventory Level (tdpur4225m000). This only has an impact on the average purchase price if the parameter is set to "Purchases (Cum.)"!
Calculate and update cost prices. This will give you a revaluation based on the recalulation of the average purchase price. Post the integration transactions separately as this will give you revaluations based on the change in average price with "Purchases (Cum.)" only.
Change the parameter setting to "Current Inventory".
Calculate and update cost prices. This will give you a revaluation based on the recalulation of the change to "Current Inventory". Post the integration transactions separately so that you have revaluation totals based on the change to weighted average cost.


Please review this and give others a chance to respond as it is late at night and it is not at all impossible that I've overlooked something.

Scott

I assume that you have the Help files for calculating Average Purchase Price but I meant to attach them.