Does inventory close affect the P&L in AX 2012 before and after the close?

Finance and Operations/AX User Forum
1

I want to know how P& L is affected before and after inventory close in the FIFO AX 2012

From my understanding, the P&L will show the actual after we run the close. Here is my understanding. please correct me

for a sales invoice, the issue transaction (Consumption) will be readjusted to first receipt cost price - How is the profit margin here is affected here.

assuming my sale price is $100 for an item. I have two material receipts at $40 & $50 on two different dates . no labor/overhead. running average is $45

now i invoice the sales order for $100. Consumption, Inventory, Sales & AR are updated.

After I close the inventory, I could see that only inventory issue account is readjusted. it will impact the balance sheet.

How does this affect the P&L. Appreciate your thoughts

2

I believe both COG and Inventory accounts are adjusted from what I understand during inventory close or recalculation

3

They should be and the physical cost of the sales line inventory transaction is updated.

4

When we run closing, issues are settled against receipts as per costing method, which is FIFO in your case. In case where you bough two units of item for $40 and $50, Average cost will be $45 which will be hit in COGs and Inventory.

At this point when you run closing, COGS will be adjusted to $5 Cr and Inventory $5 Dr.

See the impact. One account in Balance sheet(Inventory) and other is PL(COGS) and hence your profitability will be affected.

Pranav…

5

Hi Adam and Pranav, I noticed that some of the SO when invoiced, doesn’t show the consumption - Could this be due

a) we didn’t set any cost price initially for that BoM

b) running average cost of the components that make up the bom is zero - perhaps the components are not set up with initial cost price.

but still we have used inventory movement journal to bring the opening stock. going by that, wouldn’t AX use that as a base price to calculate the running average cost price of the BoM?

also, we ran the inventory recalculation as well.

So why are we not seeing any sales consumption after invoicing the SO?

Appreciate your thoughts.

6

In a FIFO environment AX will use the cost defined on the movement journal bringing in the opening stock.

7

Thanks Adam. So I am not sure what else could contribute to zero cost or why the sales consumption is not showing up.

I checked on the item cost price showing zero from the released product form. What baffles me is that AX shows cost value as greater than zero as looked in the voucher

8

The initial cost is the average, later AX works it out on FIFO. I would suggest the inventory transactions booking stock in has a cost of zero, your item record cost price is not relevant in FIFO at this stage, it is the financial transaction cost.

9

Thanks Adam, Say BoM has two components A & B - 1 QTY each. we moved the stock at zero cost for both A & B for 11 Qty each. if the SO is raised at this time, then I assume the COG will show zero cost as the Cost price of BoM is zero. Ok.

later, we raise 2 PO for these items A & B in this order. PO #1. 10 QTY of item A @ $10 item B $20; PO#2 10 QTY of item A @20 B @ 20

item A running average @ 300/40 = $7.5; Item B = 400/40 @$10; {there is a stock of 10 QTY of item A & B already}

The cost price of BoM is valued initially at $17.5. Is my understanding correct. .

10

Now, if we produce 1 BoM item to fulfill the sales order, production issue is valued at $17.5. is that correct?

11

What’s baffling is that the Production order related to that SO, shows the COG amount while no SO consumption. is this possible?

12

Yes depending upon the costing method of the item, the cost of the item at the time, the use of estimate/actual on production reporting and whether the production order has been ended or not.

13

The stock booked in at ZERO will ultimately be consumed at ZERO as per FIFO costing rules, the inventory close would realign all of this. The principle of FIFO would always be to use the first costed inventory transaction until it is consumed, then consume the ones at $10 and $20

14

At that point in time, when ended and the inventory close is run if you used A and B and the original ZERO transactions were on hand then FIFO costing would apply teh ZERO costs and your BOM item would be costed at ZERO.

15

Thank you Adam for the clarifications. When I looked the SO, Invoice Voucher - the inventory transactions show zero financial amount. from the Manage inventory tab – transactions for that BoM, I see the SO and Production order both showing the cost amount. SO was dated few days earlier. For the SO line, I clicked on 'inventory physical transactions" and am seeing that no physical or financial amount but Adjustments were made (possibly we may hv run the recalculation).

16

thanks. but the running average will be first used and then later on it will be adjusted to zero per FIFO. correct?

17

Ok. it appears that Inv adjustments are done possibly after SO is raised at zero cost price (though the date is posted few days earlier than SO date) and also inv recalculation is run after this. Could this explain?

18

At the time of SO, inventory cost of that item is zero. After that inv adj were made prior and after the SO date. PO ended after these adj

so PO showed COG; Inventory recal was run which made the adjustments to SO cost amount, because inv adj was dated earlier than SO date!

Thank you Adam.