Updating standard inventory costs with landed costs using actual costing
in this blog I will explain how you can use the new actual costing feature to update inventory costs of a purchased material considering landed costs.
We start with a purchased product that has ‘Standard’ cost method and inventory costs are maintained, here 10 USD/1EA.
For this material we can now perform and an actual cost rollup run (WoC Inventory Valuation) for the previous period, in this example for July.
After executing the run (action ‘Schedule’) you can see the cost estimate results either in the run log or in the WoC Inventory Valuation – View ‘Actual Costing’, subview ‘Material Actual Costing’. In my example the actual costing run only considers the actual inventory value, which results in a unit cost of 10 EA (click on the cost estimate line and ‘Edit’).
From here you can also navigate to the corrsponding journal entries that are considered for calculating the actual costs. From the ‘Inventory balance’ report (Inventory valuation WoC) I can see that the opening inventory balance for July was 1 EA, that is the reason why the valuation quantity of 1 ea is considered.
I now do two things:
1. I create a purchase order for July with a higher price than the actual inventory costs and do the goods receipt process. Please ensure that the goods issue is posted for the same period, for which the actual cost rollup is done, by setting the ‘Actual Delivery Date’ accordingly.
2. I create an invoice for the purchase order (also using invoice date in July) and add one item of type ‘Additional Cost Debit Item’ for transportation costs. In my example the costs are distributed completely to item 1, but it is also possible to distribute costs across multiple invoices, e.g. in case only one invoice for landed costs was provided, but covering costs for multiple purchase orders.
To also assign the additional costs to the corresponding purchasing costs we now need to execute the GR/IR Clearing run (same WoC):
You see, that the GR/IR Clearing run created additional postings for the ‘Differences from Purchasing’ related to the landed costs. Also some taxes were considered in the invoice, since the 12 USD as well as the 5 USD were net prices.
I now execute the ‘Actual Cost Rollup’ run again for the same period.
Clicking on ‘Journal Entry’ you see that the corresponding journal entry created during GR/IR run is considered in the new actual costing run:
The new ‘Actual cost rollup run’ has calculated new period costs for July of 14,16 USD per 1 EA coming from the changed net price in the purchase order as well as from the landed costs added in the invoice. In fact it is the mean value of the price carried forward from the previous period (opening balance was 1 EA) and the new purchased good of 1 EA.
Remark: If opening balance for July would have been 2 EA then the new actual unit costs of 12,77USD = 1/3*(2*10 USD (opening inventory balance for July) + 12,93 USD(= costs for purchasing 1EA with new price) + 5,39 USD (= landed costs)) would have been calculated.
Now we can perform different follow-up activities:
First we can use the actual costing rollup result to revaluate the inventory for period July using the ‘Actual Cost Allocation Run’.
In addition you can use the result to maintain the product master data costs. This can be done by using the ‘Actual Cost Release Run’. In our example we want to copy the new actual costing result for July to the product master:
Set the run to active and schedule it. As a result you can find a new entry in the product master for cost type ‘Actual Cost’ valid from August 1st.
Now there is only one step left and we are done. To update the standard inventory costs with the actual costs, we need to execute the ‘Update Inventory Costs’ run using the source cost type ‘8 – Actual Costs’.
As a result we now see a new line for the standard inventory costs valid from August 1st in the material master for my product:
So finally, what we have achieved: We were able to consider landed costs as well as actual purchasing prices as an input to update the standard inventory costs. All the steps are mass-enabled, so that you can execute the process for multiple products (all products) at the same time.