FIFO with Include Physical value check box selected

Finance and Operations/AX User Forum
1

Hi

I got the following sample while i was reading the dynamics ax costing white paper, but frankly i was a little bit confused by part of this.

Example 6: FIFO, Include physical value check box selected
If the Include physical value box is selected for an item in the Inventory model group form, Microsoft Dynamics AX will use both physical and financial receipt transactions to calculate the running average cost price. Where applicable, the system will also make adjustments to the physically updated issue transaction. When the Include physical value box is cleared, inventory close with the FIFO inventory model will make settlements only to transactions that are financially updated.
The following transactions are illustrated in the graphic below:
 1a. Inventory physical receipt for a quantity of 1 at a cost of USD 10.00 each.
 1b. Inventory financial receipt for a quantity of 1 at a cost of USD 10.00 each.
 2a. Inventory physical receipt for a quantity of 1 at a cost of USD 20.00 each.
 2b. Inventory financial receipt for a quantity of 1 at a cost of USD 20.00 each.
 3a. Inventory physical receipt for a quantity of 1 at a cost of USD 25.00 each.
 4a. Inventory physical receipt for a quantity of 1 at a cost of USD 30.00 each.
 4b. Inventory financial receipt for a quantity of 1 at a cost of USD 30.00 each.
 5a. Inventory physical issue for a quantity of 1 at a cost price of USD 21.25 each (running average of financial and physical updated transactions).
 5b. Inventory financial issue for a quantity of 1 at a cost price of USD 21.25 each (running average of financial and physical updated transactions).
 6a. Inventory physical issue for a quantity of 1 at a cost price of USD 21.25 each.
 7. Inventory close is performed. Based on the FIFO method, the first financial issue transaction will be adjusted or settled to the first updated receipt, either financial or physical.
Transaction 5b will be settled to the receipt transaction 1b. There will be an adjustment of negative USD 11.25 to this issue transaction.
The new running average cost price reflects the average of the financially and physically updated transactions at USD 27.50.

Question 1,

For running average 21.25, i can understand that is was from (110 + 1 20 + 125 + 130)/4 = 21.25, but when the inventory closed and settled. the new running average cost prices 27.50, i really not sure where it from. from my point of view it should be: (1* 20 + 125 + 130) /3 = 25, because the 1b is already settled, right ?

Question 2,

Suppose there is a physical receipt (0a) for a quantity of 1 at a cost of USD 5 each before 1a, what will happen if i run the inventory close, the transaction 5b will settle against with 0a ?

Thanks

2

Hi dingjianrui

Answer 1. The running average includes only the value of the items actually in stock. Since the first two receipts have been settled to issues, the running average is the average of the remaining two receipts: (125 + 130)/2 = 27.5

Answer 2. Assuming you restart the example from the beginning, this time with your extra receipt 0a, then I think 0a would be ignored by inventory close, because I think inventory close can only use financially updated receipts to settle issues. I think if 0a was financially updated before inventory close was run thet it would get settled to 5b.

Point 2. on this link confirms what I say, and although ‘Include physical value’ with FIFO means inventory close makes adjustments to physically updated transactions, I think this means it can adjust physically update issues. I don’t think it can use receipt transactions which are only physically updated.

http://technet.microsoft.com/en-us/library/gg243205.aspx

3

Thank you Guy.