Costing Methods (continued)
Returning Parts to a Vendor
Part returns may affect the average cost of the parts in a warehouse. If a part is returned to a Vendor at a lower or higher cost than the current average cost in the warehouse, your inventory could possibly have a positive or negative value with no quantity on hand.
For example, 1 part is on hand in the warehouse with a current average cost of $.90. The original purchase cost was $.80. The Vendor part return transaction was created for 1 @ $.80. The end result is 0 on hand with a value of $.10.
Part Transfers
Transferring parts from one warehouse to another may affect the average costing in the warehouse receiving the part transfer. When a part is transferred from one warehouse to another the cost from the originating warehouse will be transferred to the destination warehouse. A transfer could result in increasing or decreasing the average cost in the destination warehouse if the average cost in each warehouse is different.
For example, a transfer was made from a warehouse where the average cost was $.90/part. The average cost in the “transfer to” warehouse was $1.00/part prior to the transfer. After the transfer, the new average cost in the “transfer to” warehouse is $.95/part.
Correcting Inventory Balances
In situations where the part value in the warehouse is no longer realistic, you have two choices for making inventory valuation corrections. You may make a manual stock adjustment or wait until the next physical inventory were the adjustment will be made automatically when the inventory is released and variances are posted.
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