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Oversold Costing
In Platinum, an oversold condition occurs when the quantity on-hand is less than zero. This occurs when you post a sale transaction or any other reduction to inventory prior to posting the purchase transaction for the item to be reduced. There are three methods available for costing oversold items: average, standard, or last.
You are provided with 2 examples. In both situations, the item initially has a quantity on-hand of 10 with a cost of $200 and a base price of $400. The oversold costing method is defined as average cost.
The first example tracks the costing for each costing method for an oversold item. The applications involved are Accounts Payable, Inventory, and Accounts Receivable.
The second example takes the initial example and includes the Purchase Order application. This example tracks the costing movement when a Purchase Order interfaces to Accounts Payable.
Example 1
You have 10 items on hand at a cost of $200 each. You sell 15 items at a selling price of $400 each.
Four transactions are generated in the Inventory Distribution to GL file (INDIST):
(A) Debit and credit of $2000 for the existing inventory items (quantity on-hand x cost)
(B) Debit and credit of $1000 for the oversold items (quantity oversold x average cost).
Inventory Distribution to GL file (INDIST)
Cost of Goods Sold Inventory Control
|
(A) |
2000.00 |
2000.00 |
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|
(B) |
1000.00 |
1000.00 |
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Two transactions are generated in the Accounts Receivables Distribution to GL (ARDIST) file:
(A) Debit and credit for $6,000 (quantity sold x base price)
AR Distribution to GL file (ARDIST)
Accounts Receivable Revenue
|
(A) |
6000.00 |
6000.00 |
You purchase an additional 10 items at a cost of $205 each to complete the previous sale. The following transactions are generated. Each costing method is discussed.
Fifo/Lifo Cost and Average Cost
Four transactions are generated in the Accounts Payable Distribution to GL (APDIST) file:
(A) Debit and credit for $2,050 (quantity purchased x cost)
(B) Debit and credit for $25 (oversold x (original sale cost - new cost))
AP Distribution to GL file (APDIST)
Inventory Control Accounts Payable Cost of Goods Sold
|
(A) |
2050.00 |
2050.00 |
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|
(B) |
25.00 |
25.00 |
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Standard Cost
(A) Credit for $2000 (quantity purchased x standard cost)
(B) Debit for $2,050 (quantity purchased x cost)
(C) Credit for $50 (quantity purchased x (standard cost - new cost))
AP Distribution to GL file (APDIST)
Inventory Control Accounts Payable Variance
|
(A) |
2000.00 |
2050.00 |
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|
(B) |
50.00 |
Example 2
The following example tracks costing when an oversold item is purchased in Purchase Order and indirectly posted to Accounts Payable, with the update quantity-on-hand option set to "Y".
You have 10 items on hand at a cost of $200.
You post an indirect receipt through Purchase Order for 10 items with a new cost of $195. This generates an H and Z type transaction in the Period Summary file (INTXSM), a transaction in the Transaction History file (INTXDH), and updates the Quantity On-Hand, Indirect PO, and Average Cost fields in the Item Location file (INLOC). There is no change to General Ledger.
In Accounts Receivables, you sell 15 items.
Average Cost
Four transactions are generated in the Inventory Distribution to GL (INDIST) file.
(A) Debit and credit for $1975.00 (quantity on-hand x average cost)
(B) Debit and credit for $987.50 (quantity oversold x average cost)
Inventory Distribution to GL file (INDIST
Cost of Goods Sold Inventory Control
|
(A) |
1975.00 |
1975.00 |
|||
|
(B) |
987.50 |
987.50 |
Lifo/Fifo and Standard
Four transactions are generated in the Inventory Distribution to GL (INDIST) file.
(A) Debit and credit for $2000.00 (quantity-on-hand x cost)
(B) Debit and credit for $987.50 (quantity oversold x average cost)
Inventory Distribution to GL file (INDIST)
Cost of Goods Sold Inventory Control
|
(A) |
2000.00 |
2000.00 |
|||
|
(B) |
987.50 |
987.50 |
All Costing Methods
Two transactions are generated in the Accounts Receivable Distribution to GL (ARDIST) file.
(A) Debit and credit for $6000 (quantity sold x base price)
AR Distribution to GL file (ARDIST)
Accounts Receivable Revenue
|
(A) |
6000.00 |
6000.00 |
The Purchase Order is posted in Accounts Payable with a new cost of $205. The following transactions are created or updated:
Average Cost
(A) Debit for $1950.00 for purchase (quantity received x original PO cost)
(B) Debit of $100.00 for cost adjustment (quantity received x (original PO cost - new AP cost))
(C) Debit and credit of $50.00 for sale cost adjustment ((original sales cost - adjusted sales cost) x original oversold sale quantity)
(D) Credit of $2,050.00 for purchase offset (quantity received x new cost)
Accounts Payable Distribution to GL file (APDIST)
Inventory Control Accounts Payable Cost of Goods Sold
|
(A) |
1950.00 |
|||||||
|
(B) |
100.00 |
|||||||
|
(C) |
50.00 |
50.00 |
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|
(D) |
2050.00 |
Standard Cost
The following transactions are generated. The standard cost is $200.
(A) Debit for $2000.00 for purchase (quantity received x standard cost)
(B) Debit and credit of $12.50 for sale cost adjustment (oversold sale quantity x (average cost - standard cost))
(C) Credit of $2,050.00 for purchase offset (quantity received x new cost)
(D) Credit of $50.00 for cost adjustment (quantity received x (standard cost - new cost))
(E) Debit of $100.00 for cost adjustment (quantity received x (original PO cost - new AP cost))
AP Distribution to GL file (APDIST)
Inventory Control Accounts Payable Cost of Goods Sold
|
(A) |
2000.00 |
|||||||
|
(B) |
12.50 |
12.50 |
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|
(C) |
2050.00 |
Variance
|
(D) |
50.00 |
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|
(E) |
100.00 |
Lifo/Fifo
The following transactions are generated:
(A) Debit and credit of $12.50 for sale cost adjustment (oversold sale quantity x (average cost - PO cost))
(B) Debit for $1950.00 for purchase (quantity received x original PO cost)
(C) Debit of $100.00 for cost adjustment (quantity received x (original PO cost - new AP cost))
(D) Debit and credit of $50.00 for sale cost adjustment ((PO cost - new AP cost) x original oversold sale quantity)
(E) Credit of $2,050.00 for purchase offset (quantity received x new cost)
AP Distribution to GL file (APDIST)
Inventory Control Accounts Payable Cost of Goods Sold
|
(A) |
12.50 |
12.50 |
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|
(B) |
1950.00 |
|||||||
|
(C) |
100.00 |
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|
(D) |
50.00 |
50.00 |
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|
(E) |
2050.00 |
When a purchase order is posted in Accounts Payable, transactions are created in the following Inventory data files.
History Transaction file (INTXDH)
Purchase (PAP - AP Voucher)
PO Indirect Receipt (HPO)
Additional Cost Voucher (EAP)
Period Summary (INTXSM)
Indirect Receipt (H)
The Z type transaction is updated to reflect the final quantity
An E type transaction is generated to reflect the cost adjustment
Cost (INTXCT)
Cost layers are adjusted to reflect the active layer and the appropriate cost associated with that layer.
