We use average costing. When does the average cost of a part get changed? I’m primarily concerned about manufactured parts which brings up a question due to a large WIP variance on a part with zero average cost.
Do we need to use the costing workbench?
On receipt to inventory from Job.
Just to confirm @Vinaykamboj 's statement and emphasize, if you have a job to customer transaction (in other words when part does not go to inventory) this cost will not be used in your average calculations
Not sure if it happens in E9, buying E10 a partial job receipt to inventory may have azero cost. Only when the last of the jobs production qty is received, will the costs in WIP be used.
For example, a job is to make10, and the material cost for each is $500. If you issue all the mtl to the job, WIP will have $5000.
If you receive 5 into stock, they go in at $0. WIP still has $5000. When you receive the final 5 to stock they use a cost of $1000 each (the $5000 in WIP divided by the qty 5). But there were 5 already in stocks at zero cost, so Avg Cost gets set to (5 x $0 + 5 x $1000) / (5 + 5) = $500
I believe in this scenario the zero cost receipt may have a lot to do with the reported quantities on the job’s operations. Epicor uses the reported quantities to determine how much of the material cost to date to allocate to the item being received. If you issue all your materials to the job, but fail to report any quantities on that jobs operations, Epicor will not be able to calculate a cost for those items being received to stock. If you happen to receive the full outstanding quantity on the job into stock, then Epicor will allocate all the costs remaining in WIP to last MFG-STK transaction. For example if you have a job for 10 units, and you issue all the materials to the job but fail to report any quantities complete. If you receive 7 units to stock (MFG-STK), those units may contain zero costs. Then you receive the last 3 units to stock, those 3 units will contain any remaining cost in WIP up to that point. Now if you happen to still have all 10 units in stock, Epicor will recalculate the average cost and spread it over those 10 units. Technically your cost per unit is correct. However if you did not have all 10 on hand, for example you shipped or issued out 4 units, then Epicor will recalculate your average using the 6 units on hand, resulting in a higher average cost for those remaining units. Welcome to the joys of Average Cost in Epicor.
Wow - thanks for the detailed explanation. That helps a lot.
I have attached one of my procedure notes, it may benefit
Section 33 INVENTORY VALUES
STOCK WRITE DOWN
AVERAGE COSTS FOR INVENTORY
STOCK VALUES
PART COSTS
PART WRITE DOWN
We use average part costing. This is assigned in Part setup (Costing Method = Avg)
When “Writing stock off” ie assigning a $0.00 value to the stock or making the stock any other “prescribed “ $ amount, the Cost Method must be changed set to Std not Avg
STOCK WRITE DOWN PROCEDURE
Note Average Unit Cost is NOT the same as Unit Cost Generally average cost is used to calculate Inventory values ie total stock values and unit costs is used to calculate the cost of each separate transaction.
For example old stock has, say unit costs $A and qty Q1
And the same stock purchased after a price increase has a unit cost of $B and Q2.
The average costs will depend on the values and quantity of each lot and will not be equal to either $A or $B
Generally average cost is used to calculate Inventory values ie total stock values and unit costs is used to calculate the cost of each separate transaction.
Note. Mtl Unit Cost shown on reports is the current material unit cost and is equal to either
Note. If a part is setup for AVG costing the Mtl Unit Cost is updated/overwritten with a new Average
only when the Quantity on hand value changes
AVERAGE COST CALCULATION
The average cost is calculated when the Quantity on Hand value changes.
The value is calculated as
• New Average Cost = (Prev. Quantity x Prev.Unit Cost) + (Quantity Received x Receipt Unit Cost) / New Quantity On Hand
• Where Prev.Quantity" and “Prev.Unit Cost” are stored somewhere as opposed to being summed up for each transaction.
PROBLEMS CAUSED WHEN WRITING DOWN STOCK AND NOT CHANGING TO STD COSTS
The following example illustrates the problems that can occur when Average costs are overwritten.
In this example, stock was written off and cost was set to zero. However at stock take it was found the stock value was not at $zero.
The stock value did however automatically adjust to $zero after a sale of the stock as shown below.
(In this example the part should have been changed from AVG (average)to STD (standard) cost when the stock was written off and its unit value changed to $0.00. )
For part 300057
Referring to the following Epicor reports it is seen the
28/6/18 Stock status report for the material (pre stock take) shows the average unit costs as $76.72
30/6/18 Stock status report for the material (post stock take) shows the average unit costs as $76.72
2/7/18 Sale to Customer this changed the Stock Qty on Hand refer Part Transaction History
2/7/18 As a consequence of the Qty change the Average cost automatically recalculated as follows
New Average Cost = (Prev. Quantity (458m)x Prev.Unit Cost ($0.00)) + (Quantity Received
(-4.8m)x Receipt Unit Cost ($0.00)) / New Quantity On Hand (453.2m) .
>> new Average Cost = $0.00
2/7/18 The stock status report now shows the (new) average unit cost as $0.00