Costing Methods (continued)
Dealing with High Fluctuation in Part Costs – Direct Expensing
If parts are being ordered at a much lower cost than your current average cost, you may use the direct expense option on the Purchase Order. This way the warehouse average cost will not be affected by the favorable pricing from the vendor. The direct expense option is typically used when parts are being ordered for a particular Job when your company is receiving special pricing from the vendor. If parts are ordered for stock and the vendor is offering a special sale price of which you want to take advantage, you may direct expense the parts then perform a stock adjustment to put the parts into stock.
If excess parts are returned to stock from a Job where the parts were direct expensed, the cost of the part from the original Purchase Order receipt will be used for the transaction, which may affect the average cost in the warehouse.
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