AX2009 - Fact Sheet - Inventory Closing - Average Cost Price - Inventory Model Groups v1.0

Holmfirth Consulting Limited

FACT SHEET Inventory Closing - Average Cost Price - Inventory Model Groups

Prepared by

Andrew Firth

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Revision History

Change Record

Date Author Version Change reference

15/09/2011 Andrew Firth 1.0 Published

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Table of Contents

1 ABOUT AVERAGE COST PRICE 4

2 SPECIFY AN INVENTORY MODEL FOR INVENTORY CLOSE 8

2.1 FIFO 8

2.1.1 FIFO without Include physical value 8

2.1.2 FIFO with Include physical value 9

2.1.3 FIFO with Marking 10

2.2 LIFO 12

2.2.1 LIFO without Include Physical value 12

2.2.2 LIFO with the Include Physical value 14

2.2.3 LIFO with Marking 15

2.3 ABOUT LIFO DATE 17

2.3.1 LIFO Date without Include Physical value 17

2.3.2 LIFO Date with Include Physical value 18

2.3.3 LIFO Date with Marking 19

2.4 ABOUT WEIGHTED AVERAGE DATE 30

2.5 PREREQUISITES FOR STANDARD COSTS 37

3 INVENTORY MODEL GROUPS 39

4 TABS 39

4.1 OVERVIEW & GENERAL TABS 40

4.2 SETUP TAB 40

4.2.1 Negative Stock 40

4.3 SETUP TAB 40

4.3.1 Warehouse Management 40

4.4 SETUP TAB 41

4.4.1 Ledger Integration 41

4.5 SETUP TAB 41

4.5.1 Physical Update 41

4.6 SETUP TAB 42

4.6.1 Reservation 42

4.7 STOCK MODEL TAB 43

4.7.1 Stock Model 43

4.8 STOCK MODEL TAB 43

4.8.1 Cost Price 43

5 END OF DOCUMENT 43

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1 About Average Cost Price

The inventory close process in Microsoft Dynamics AX settles issue transactions to

receipt transactions based on the inventory valuation method that is selected in the

item's inventory model group.

Before inventory close is run, however, Microsoft Dynamics AX calculates a running

Average cost price that in most cases is used for posting issue transactions.

Microsoft Dynamics AX estimates this running Average cost price for an item by using

the following formula:

Estimated price = (physical amount + financial amount) / (physical

quantity + financial quantity)

The following table indicates when Microsoft Dynamics AX posts inventory transactions

using the running Average cost price, and when it uses the cost price defined on the

item master record instead.

IF… Estimated running

average cost price

Cost price defined on the

item master Both the numerator

and

denominator are positive

THEN Microsoft

Dynamics AX

uses…

x Blank

The

numerator, denominator,

or both are

negative

THEN

Microsoft Dynamics AX

uses…

Blank x

If the

denominator is 0 (zero)

THEN

Microsoft Dynamics AX

uses…

Blank x

* Numerator = (physical amount + financial amount);

*Denominator = (physical quantity + financial quantity)

Note

If the Include physical value option is not selected for an item, Microsoft Dynamics AX uses 0 (zero) for both physical amount and physical quantity.

On rare occasions, you may encounter a pricing amplification scenario that yields overly inflated running Average cost price estimates. These are possible when Microsoft

Dynamics AX prices several issues before it has sufficient receipts to base a price on.

There are, however, steps you can take to avoid the issue, or to mitigate its impact

when it does occur, as explained in the following scenario.

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Scenario

The following transactions occur with an item for which you have applied the Include

Physical Value option:

1. You receive 100 @USD 100.00 financially.

2. You issue 200 financially.

3. You receive 101 @USD 202.00 physically.

When you examine the estimated running Average cost price for the item, although you expected a cost price of USD 1.51, you discover an estimated running Average of

USD 102.00 based on the following formula:

Estimated price = [202 + (-100)] / [101 + (-100)] = 102/1 = 102

This occurs because when 200 items are issued financially in step 2, Microsoft Dynamics AX is forced to price 100 of the items before it has any corresponding receipts, which

results in negative inventory. Microsoft Dynamics AX then estimates a unit price of USD

1.00, which we might expect, but when the corresponding 100 receipts come, they are

at a unit price of USD 2.00 each.

Note

Even though the issues result in negative inventory, inventory is positive at the time the issue price is

computed. That is why the running Average cost price is used, rather than the price on the item master.

At this point, Microsoft Dynamics AX has an inventory value offset of USD 100.00. And

while that offset was built up over 100 pieces, with a unit offset of USD 1.00 each, we

now have only one piece in inventory, and that offset of USD 100.00 is allocated to this

single piece, resulting in the overly inflated estimated cost price.

Note

For comparison, note that if steps 2 and 3 are reversed in the example above, 200 items will be issued at a unit price of USD 1.51, and one piece will remain at a unit price of USD 1.51.

Because this pricing amplification scenario can occur when negative inventory is involved, it is difficult to avoid in the following cases:

You must estimate issue prices on the on-hand value and quantity

You must adjust the on-hand value and quantity on issues and receipts

Your business model allows for sending out, or pricing, more pieces than you have

You must accept any receipt value and quantity submitted to you

If your business model allows them, however, the following practices can help you avoid

the negative quantities that make the pricing amplification scenario possible:

If you select the Include physical value option for an item, then clear the Physical negative inventory check box on the Setup tab in the Inventory

model groups form.

If you do not select the Include physical value option for an item, then clear

the Financial negative inventory option on the Setup tab in the Inventory model groups form.

Bear in mind also that the maximum offset in your physical inventory value is limited by

the number of physical transactions and the difference between physical and financial

prices. As long as all physical transactions are eventually updated financially, then the physical value cannot rise to extreme levels.

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In addition, the amplification effect decreases significantly when the accumulated offset

is spread out over a number of on-hand pieces rather than just one.

Inventory transactions can be physically updated and financially updated in

Microsoft Dynamics AX, and certain types of physical and financial transactions increase

inventory quantities, while others decrease the quantity.

This topic provides an overview of which types of transactions increase and decrease inventory quantities.

When a physical transaction is posted, the status of the transaction record is Received.

The following transactions are considered physical increases:

Purchase order receipt Sales order packing slip return

Production order report as finish

By-product on a production order picking list

When a financial receipt transaction is posted, the status of the transaction record that increases the quantity is Purchased. The following transactions are considered

financial increases:

Purchase order invoice

Sales order invoice for a return

Production order costing Positive quantity inventory journals, such as movement, profit loss, counting

journals, bills of material, and transfer

When transactions that increase quantity are posted, Microsoft Dynamics AX calculates

a running Average cost price that is based on the cost of each of these transactions for each inventory dimension that is being tracked financially.

Microsoft Dynamics AX uses the calculated running Average cost price when a

transaction that decreases quantity is posted, no matter which inventory model is

associates with that inventory, so long as the transaction that decreases quantity was not previously marked to another transaction before posting. If the physical on-hand

inventory goes negative, then Microsoft Dynamics AX will use the cost defined for the

item on the Price/Discount tab of the Item form.

Note If multi site functionality is enabled, this cost will instead be the inventory cost defined for a site on

the Default order settings form.

When a physical issue transaction is posted, the status of the transaction record is

Deducted. The following transactions are considered physical issues:

Production order picking list journal

Sales order packing slip Purchase order packing slip return

When a financial transaction is posted, the status of the transaction record is Sold. The

following transactions are considered financial issues:

Production order ended

Sales order invoice

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Purchase order invoice return

Negative quantity inventory journals, such as movement, profit loss, counting

journal, bills of material, and transfer

Since transactions that decrease quantity are posted at the running average cost price,

the inventory close procedure is needed to settle the issue transaction to a receipt

transaction based on the inventory model assigned to an item.

The model group setup for an item determines whether physically updated transactions

are factored into the calculation of the item's running average cost price.

Specifically, if the Include physical value box is selected on the Inventory model tab of the Inventory model groups form, then both physically updated transactions and

financially updated transactions will be used to calculate the running average cost price.

If the Include physical value box is cleared, only financially updated transactions will

be used in the calculation of the running average cost price.

The Include physical value parameter leads to some slightly different results

depending on the inventory model you choose:

If you select the Include physical value box when using the FIFO, LIFO, or LIFO

Date inventory models, then inventory close will also make adjustments to

physically updated transactions. If you do not select the Include physical value box with these inventory

models, then inventory close will make settlements only to financially updated

transactions.

When you use the weighted average or weighted average date inventory models, inventory close will settle only financially updated transactions whether or not you

select the Include physical value box.

Example

You have selected the Include physical value box and receive the following purchase orders:

Purchase order for a quantity of 2; cost price is USD 10.00; packing slip updated

Purchase order for a quantity of 3; cost price is USD 12.00; invoiced updated

In this case, the running average cost price will be USD 11.20 because both physically

and financially updated transactions are used to calculate the cost price.

Example

You have not selected the Include physical value box and the cost price on the item

setup is USD 10.00. You receive the following purchase order:

Purchase order for a quantity of 20; cost price is USD 12.00; packing slip updated

When a sales order is posted, the system will post the cost amount at USD 10.00

because the running average cost price will not include physically posted transactions.

Note

For comparison, if this item had been set up with Include physical value selected, the sales order would have been posted with a cost amount of USD 12.00.

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2 Specify an Inventory Model for Inventory Close

An inventory model is typically assigned to an item when you are configuring its

inventory model group. We recommend, however, that you confirm that the inventory

model you want to use for each model group is selected before you run the inventory

close procedure.

1. Click Inventory management > Setup > Inventory model groups.

2. Click the Inventory model tab.

3. Make a selection in the Inventory model field.

Below are explanations of how different Inventory Models work with different settings First in, First out (FIFO) is an inventory model in which the first acquired receipts are

issued first. Financially updated issues from inventory are settled against the first

financially updated receipts into inventory based on the financial date of the inventory

transaction

2.1 FIFO

When using FIFO, you can choose to mark inventory transactions so that a specific

receipt is settled against a specific issue instead of following the FIFO rule.

We recommend a periodic inventory closing when you use the FIFO inventory model.

The following examples illustrate the impact of using FIFO with three different configurations:

FIFO without the Include physical value option

FIFO with the Include physical value option

FIFO with marking

2.1.1 FIFO without Include physical value

In this FIFO example, the inventory model group is not marked to include physical value.

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 UD 30.00 each.


5a. Inventory physical issue for a quantity of 1 at cost price of USD 20.00 each

(running average of financially updated transactions). 5b. Inventory financial issue for a quantity of 1 at cost price of USD 20.00 each

(running average of financially updated transactions).

6. Inventory close is performed. Based on the FIFO method, the first financially

updated issue will be settled to the first financially updated receipt. An adjustment of negative USD 10.00 will be made on the issue transaction.

The new running average cost price reflects the average of the financially updated

transactions.

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The following diagram illustrates this series of transactions with the effects of choosing

the FIFO inventory model without the Include physical value option.

Key to diagram

Inventory transactions are represented by vertical arrows.

Receipts into inventory are represented by vertical arrows above the timeline.

Issues out of inventory are represented by vertical arrows below the timeline.

Above (or below) each vertical arrow, the value of the inventory transaction is specified in the format Quantity@Unit price.

An inventory transaction value surrounded by brackets indicates that the

inventory transaction is physically posted into inventory.

An inventory transaction value without brackets indicates that the inventory

transaction is financially posted into inventory. Each new receipt or issue transaction is designated with a new label.

Each vertical arrow is labelled with a sequential identifier, such as 1a. The

identifiers indicate the sequence of inventory transaction postings in the timeline.

Inventory closings are represented by a red vertical dashed line and the label Inventory Close.

Settlements that are performed by inventory close are represented by dotted red

arrows going diagonally from a receipt to an issue.

2.1.2 FIFO with Include physical value

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.





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.


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).

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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.


the FIFO inventory model with the Include physical value option.

Key to diagram


Receipts into inventory are represented by vertical arrows above the timeline. Issues out of inventory are represented by vertical arrows below the timeline.

Above (or below) each vertical arrow, the value of the inventory transaction is

specified in the format Quantity@Unit price.

An inventory transaction value surrounded by brackets indicates that the inventory transaction is physically posted into inventory.


transaction is financially posted into inventory.

Each new receipt or issue transaction is designated with a new label. Each vertical arrow is labelled with a sequential identifier, such as 1a. The


Inventory closings are represented by a red vertical dashed line and the label

Inventory Close.

Settlements that are performed by inventory close are represented by dotted red arrows going diagonally from a receipt to an issue.

2.1.3 FIFO with Marking

Marking is a process in Microsoft Dynamics AX that allows you to link, or mark, an issue transaction to a receipt transaction. Marking can occur either before or after a

transaction is posted. You can use marking when you want to be sure of the exact cost

of the inventory when the transaction is posted or when the inventory close is

performed.

For example, suppose the Customer Service department accepted a rush order from an

important customer. Because this is a rush order, you will have to pay more for this item

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to accommodate your customer's request. You would like to be certain that the cost of

this inventory item is reflected in the margin, or cost of goods sold (COGS) for this sales

order invoice.

When the purchase order is posted, the inventory is received at a cost of USD 120.00. If

this sales order document is marked to the purchase order before the packing slip or

invoice is posted, the COGS will be USD 120.00 instead of the current running average

cost for the item. If the sales order packing slip or invoice is posted before the marking occurs, the COGS will be posted at the running average cost price.

Before inventory close is performed these two transactions can still be marked to each

other.

When a receipt transaction is marked to an issue transaction, the valuation method defined in the item's inventory model group will be disregarded and Microsoft Dynamics

AX will settle these transactions to each other.

To mark an issue transaction to a receipt before the transaction is posted, open the

Sales order form, select a transaction line, and then click the Inventory button on the transaction line and select Marking. The Marking form will open and display all the open

receipt transactions. You can then select one of these transactions to match to, or mark,

this issue transaction.

To mark an issue transaction to a receipt after the transaction has been posted, navigate

to the inventory item on the Transactions on Item form and click the Transaction button. Select the issue transaction that you want to mark, and then click the Inventory button

and select Marking. The Marking form will open and display all the open receipt

transactions. You can then select one of these transactions to match to, or mark, this

issue transaction.








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 is marked to the inventory receipt

2b before the transaction is posted. This transaction is posted at a cost price of

USD 20.00 each. 6a. Inventory physical issue for a quantity of 1 at a cost price of USD 21.25 each.

7 Inventory close is performed. Since the financially updated FIFO transaction is

marked to an existing receipt, these transactions are settled to each other and no

adjustment is made.

The new running average cost price reflects the average of the financially and physically

updated transactions at USD 27.50.


the FIFO inventory model with marking between issues and receipts.

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Key to diagram

Inventory transactions are represented by vertical arrows. Receipts into inventory are represented by vertical arrows above the timeline.



specified in the format Quantity@Unit price. An inventory transaction value surrounded by brackets indicates that the







Inventory Close. Settlements that are performed by inventory close are represented by dotted red


2.2 LIFO

Last in, First out (LIFO) is an inventory model in which the last (newest) receipts are

issued first. Issues from inventory are settled against the last receipts into inventory

based on the date of the inventory transaction.

When using LIFO, you can choose to mark inventory transactions so that a specific item

issue is settled against a specific receipt instead of using the LIFO rule.

We recommend a periodic inventory closing when you use the LIFO inventory model.

The following examples illustrate the impact of using LIFO with three different configurations:

LIFO without the Include physical value option

LIFO with the Include physical value option

LIFO with marking

2.2.1 LIFO without Include Physical value

In this LIFO illustration, the inventory model group is not marked to include physical

value.


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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 20.00 each


5b. Inventory financial issue for a quantity of 1 at a cost price of USD 20.00 each

(running average of financially updated transactions). 6. Inventory close is performed. Based on the LIFO method, the last financially

updated issue will be settled to the last financially updated receipt. An adjustment

of USD 10.00 will be made on the issue transaction.

The new running average cost price reflects the average of the financially updated transactions at USD 15.00.


the LIFO inventory model without the Include physical value option.

Key to diagram



Issues out of inventory are represented by vertical arrows below the timeline. Above (or below) each vertical arrow, the value of the inventory transaction is




An inventory transaction value without brackets indicates that the inventory transaction is financially posted into inventory.

Each new receipt or issue transaction is designated with a new label.


identifiers indicate the sequence of inventory transaction postings in the timeline. Inventory closings are represented by a red vertical dashed line and the label

Inventory Close.



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2.2.2 LIFO with the Include Physical value

If the Include physical value box is selected for an item in the Inventory model groups


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 LIFO inventory model will make settlements only to transactions that are financially updated.



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.






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 LIFO method, the last issue

transaction will be adjusted or settled to the last updated receipt.

Transaction 6a will be adjusted to the receipt transaction 4b. The system will not settle these transactions since the receipt is updated only physically and not financially.

Instead, only an adjustment of USD 8.75 will be posted to the physical issue transaction.

Transaction 5b will be adjusted to the physical receipt transaction 3a. The system will

not settle these transactions since they are not both financially updated. Instead, only an adjustment of negative USD 3.75 will be made to this issue transaction.



The following diagram illustrates this series of transactions with the effects of choosing the LIFO inventory model with the Include physical value option.

Key to diagram

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inventory transaction is physically posted into inventory. An inventory transaction value without brackets indicates that the inventory



Each vertical arrow is labelled with a sequential identifier, such as 1a. The identifiers indicate the sequence of inventory transaction postings in the timeline.


Inventory Close.


2.2.3 LIFO with Marking

Marking is process in Microsoft Dynamics AX that allows you to link, or mark, an issue

transaction to a receipt transaction. Marking can occur either before or after a transaction is posted. You can use marking when you want to be sure of the exact cost


performed.

For example, suppose the Customer Service department accepted a rush order from an important customer. Because this is a rush order, you will have to pay more for this item

to accommodate your customer's request. You would like to be certain the cost of this

inventory item is reflected in the margin or cost of goods sold (COGS), for this sales

order invoice.





Before inventory close is performed these two transactions can still be marked to each

other.


Sales order form, select a transaction line, and then click the Inventory button on the transaction line and select Marking. The Marking form will open and display all the open

receipt transactions. You can then select one of these transactions to match to, or mark,


To mark an issue transaction to a receipt after the transaction has been posted, navigate to the inventory item on the Transactions on Item form and click the Transaction button.

Select the issue transaction that you want to mark, and then click the Inventory button


transactions. You can then select one of these transactions to match to, or mark, this issue transaction.


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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



2b before the transaction is posted. This transaction is posted with a cost price of USD 20.00 each.


7. Inventory close is performed. Since the financially updated FIFO transaction is

marked to an existing receipt, these transactions are settled to each other and no adjustment is made.




the LIFO inventory model with marking between issues and receipts.

Key to diagram













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2.3 About LIFO Date

Last in, First out Date (LIFO Date) is an inventory model based on the LIFO principle that

issues from inventory are settled against the last receipts into inventory based on the

date of the inventory transaction. With LIFO Date, if there is no receipt before the issue,

the issue is settled against any receipts that occur after the date of the issue. Several issues on the same date may be settled in the order of last issue, last receipt.

When using LIFO Date, you can choose to mark inventory transactions so that a specific

item receipt is settled against a specific issue instead of using the LIFO Date rule.

We recommend a periodic inventory closing when you use the LIFO Date inventory model.

The following examples illustrate the impact of using LIFO Date with three different

configurations:

LIFO Date without the Include physical value option LIFO Date with the Include physical value option

LIFO Date with marking

2.3.1 LIFO Date without Include Physical value

In this LIFO Date illustration, the inventory model group is not marked to include

physical value.





3a. Inventory physical receipt for a quantity of 1 at a cost of USD 25.00 each. 4a. Inventory physical issue for a quantity of 1 at a cost price of USD 15.00


4b. Inventory financial issue for a quantity of 1 at a cost price of USD 15.00



6. Inventory close is performed. Based on the LIFO Date method, the last

financially updated issue will be settled to the last financially updated receipt by

date. An adjustment of USD 5.00 will be made on the issue transaction. These transactions will be settled to each other.


transactions at USD 15.00.

The following diagram illustrates this series of transactions with the effects of choosing the LIFO Date inventory model without the Include physical value option.

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Key to diagram











Inventory Close.



If the Include physical value box is selected for an item in the Inventory model groups


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 LIFO Date inventory model will make settlements

only to transactions that are financially updated.

2.3.2 LIFO Date with Include Physical value

In this LIFO Date illustration, the inventory model group is marked to include physical

value.






4a. Inventory physical issue for a quantity of 1 at a cost price of USD 18.33 each (running average of financially updated transactions).

4b. Inventory financial issue for a quantity of 1 at a cost price USD 18.33 each



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6. Inventory close is performed. Based on the LIFO Date method, the last

updated issue will be adjusted or settled to the last updated receipt by date.

These transactions will not be settled to each other since the financial receipt transaction is adjusted to a physical update transaction. Instead only an

adjustment of USD 6.67 will be made on the issue transaction.


transactions at USD 20.00.


the LIFO inventory model with the Include physical value option.

Key to diagram













2.3.3 LIFO Date with Marking

Marking is process in Microsoft Dynamics AX that allows you to link, or mark, an issue transaction to a receipt transaction. Marking can occur either before or after a



performed.

For example, suppose the Customer Service department accepted a rush order from an



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inventory item is reflected in the margin or cost of goods sold (COGS), for this sales

order invoice.

When the purchase order is posted, the inventory is received at a cost of USD 120.00. If this sales order document is marked to the purchase order before the packing slip or


cost for the item. If the sales order packing slip or invoice is posted before the marking

occurs, the COGS will be posted at the running average cost price.

Before Inventory close is performed these two transactions can still be marked to each

other.

When a receipt transaction is marked to an issue transaction, the valuation method

defined in the item's inventory model group will be disregarded and Microsoft Dynamics AX will settle these transactions to each other.


Sales order form, select a transaction line, and then click the Inventory button on the

transaction line and select Marking. The Marking form will open and display all the open receipt transactions. You can then select one of these transactions to match to, or mark,



to the inventory item on the Transactions on Item form and click the Transaction button.

Select the issue transaction that you want to mark, and then click the Inventory button and select Marking. The Marking form will open and display all the open receipt


issue transaction.









(running average of financial and physical updated transactions). 5b. Inventory financial issue for a quantity of 1 is marked to the inventory receipt

2b before the transaction is posted. This transaction is posted with a cost price of

USD 20.00 each.

6a. Inventory physical issue for a quantity of 1 at a cost price of USD 21.25 each. 7. Inventory close is performed. Since the financially updated FIFO transaction is


adjustment is made.

The new running average cost price reflects the average of the financially and physically updated transactions at USD 27.50.


the LIFO inventory model with marking between issues and receipts.

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Key to diagram









Each vertical arrow is labeled with a sequential identifier, such as 1a. The


Inventory Close.



Weighted average is an inventory model based on the weighted average principle, where

issues from inventory are valued at the average value of the items that are received into

inventory during the inventory closing period, plus any on-hand inventory from the

previous period.

When you run an inventory closing, all receipts are settled against a virtual issue, which

holds the total received quantity and value. This virtual issue has a corresponding virtual

receipt from which the issues are settled. In this way, all issues get the same average

cost. The virtual issue and receipt can be seen as a virtual transfer, called the weighted

average inventory closing transfer.

If there is only one receipt, all issues can be settled from it and the virtual transfer will

not be created.

When using weighted average, you can choose to mark inventory transactions so that a

specific item receipt is settled against a specific issue, instead of using the weighted average rule.

We recommend a monthly inventory closing when you use the weighted average

inventory model.

In Microsoft Dynamics AX, the weighted average inventory costing method is calculated

by the following formula:

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Weighted average = (Q1*P1 + Q2*P2 + Qn*Pn) / (Q1 + Q2 + Qn)

Inventory transactions leaving the inventory issues, including sales orders, inventory

journals, purchase credit notes, and production orders, will take place at an estimated cost price on the date of posting. This estimated cost price is also referred to as running

average.

At the time of inventory close, Microsoft Dynamics AX will analyze the inventory

transactions for previous and current periods and determine which of the following closing principles should be used.

Direct settlement

Summarised settlement

Settlements are inventory close postings that adjust the issues to the correct weighted average as of the closing date.

The following examples illustrate the impact of using weighted average with five different

configurations:

Weighted average direct settlement without the Include physical value option Weighted average summarised settlement without the Include physical value

option

Weighted average direct settlement with the Include physical value option

Weighted average summarised settlement with the Include physical value option

Weighted average with marking

The direct settlement principle used in this version of Microsoft Dynamics AX is the same

used for weighted average in previous versions. The system will settle directly between

receipts and issues. Microsoft Dynamics AX uses this direct settlement principle in

certain specific situations:

One receipt and one or several issues has been posted in the period

Only issues have been posted in the period and the inventory contains on-hand

items from a previous closing

In the scenario below, a financially updated receipt and issue have been posted. During inventory close, Microsoft Dynamics AX will settle the receipt directly against the issue,

and no adjustment to the cost price is needed on issue.


1a. Inventory physical receipt updated for a quantity of 5 at USD 10.00 each

1b. Inventory financial receipt updated for a quantity of 5 at USD 10.00 each 2a. Inventory physical issue updated for a quantity of 2 at USD 10.00 each

2b. Inventory financial issue updated for a quantity of 2 at USD 10.00 each

3. Inventory close is performed using the direct settlement method to settle the

inventory financial receipt to the inventory financial issue.


the Weighted average inventory model and the direct settlement principle without the

Include physical value option.

23 | P a g e

Key to diagram




specified in the format Quantity@Unit price. An inventory transaction value surrounded by brackets indicates that the









In this version of Microsoft Dynamics AX, a new settlement principle has been introduced

for weighted average based on the principle that all receipts within in a closing period are summarised into a new inventory transfer transaction called Weighted average

inventory closing. All the receipts for the period will be settled against the issue of the

newly created inventory transfer transaction. All issues for the period will be settled

against the receipt of the new inventory transfer transaction.

If the on-hand inventory is positive after the inventory close, that on-hand inventory and

value of the inventory are summarised on the new inventory transfer transaction

(receipt).

If the inventory on-hand is negative after the inventory close, the on-hand inventory and

value of the inventory is the sum of individual issues that have not been fully settled.

In the scenario below, several financially updated receipts and one issue have been

posted.

During inventory close, Microsoft Dynamics AX will generate and post the summarised

inventory transfer transaction in order to settle all the receipts for the period against the summarised inventory transfer issue transaction. All the issues posted for the period will

be settled against the summarized inventory transfer receipt transaction. The weighted

average is calculated to be USD 15.00.

24 | P a g e

Because the issue was originally posted with an estimated cost price of USD 14.67, an

adjustment of negative USD 0.33 will be created and posted on the issue. As of the

inventory closing date, the on-hand inventory is 3 pieces with a value of USD 45.00.


1a. Inventory physical receipt updated for a quantity of 2 at a cost of USD 11.00

each.

1b. Inventory financial receipt updated for a quantity of 2 at a cost of USD 14.00 each.


each.


3a. Inventory physical issue updated for a quantity of 1 at a cost of USD 14.67

each (running average).

3b. Inventory financial issue updated for a quantity of 1 at a cost of USD 14.67 each (running average).


each.

4b. Inventory financial receipt updated for a quantity of 1 at a cost of USD 16.00

each. 5. Inventory close is performed.

6a. "Weighted average inventory close transaction" financial issue is created to

sum the settlements of all the inventory financial receipts.

6b. "Weighted average inventory close transaction" financial receipt is created as the offset to 5a.


the Weighted average inventory model and the summarised settlement principle without

the Include physical value option.

Key to diagram








25 | P a g e




Inventory Close.


arrows going diagonally from a receipt to an issue. Red arrows illustrate the receipt transactions being settled to the issue

transaction created by the system.

The green arrow represents the offsetting system-generated receipt transaction

to which the originally posted issue transaction is settled

In this version of Microsoft Dynamics AX, the parameter Include physical value works

differently with the weighted average inventory model than in previous versions of the

product.

If the Include physical value box is selected for an item in the Inventory model group form, Microsoft Dynamics AX will use physically updated receipts when calculating the

estimated cost price, or running average. Issues will be posted based on this estimated

cost price during the period. During the inventory close, financially updated receipts only

will be considered in the weighted average calculation.

We recommend a monthly inventory close when you use the weighted average inventory model.

In this weighted average direct settlement example, the inventory model group is

marked to include physical value.



each.


each. 2a. Inventory physical receipt updated for a quantity of 1 at a cost of USD 15.00

each.


each (running average cost, since the physical receipt value is taken into

consideration). 3b. Inventory financial issue updated for a quantity of 1 at a cost of USD 12.50


consideration).

4. Inventory close is performed. During inventory close, Microsoft Dynamics AX will disregard all inventory transactions that have been only physically updated.

Instead, the direct settlement principle will be used because only one financial

receipt exists. An adjustment of USD 2.50 will be posted to the inventory

transaction that has been financially issued as of the inventory closing date. After inventory close, the on hand inventory will be a quantity of 1 with a running

average cost price of USD 15.00.


the Weighted average inventory model and the direct settlement principle with the Include physical value option.

26 | P a g e

Key to diagram














In this version of Microsoft Dynamics AX, the Include physical value parameter works differently with weighted average than in previous versions of the program.


form, Microsoft Dynamics AX will use physically updated receipts in the calculation of

estimated cost price, or running average. Issues will be posted based on this estimated cost price during the period. During the inventory close financially updated receipts only


We recommend a monthly inventory close when you use the weighted average inventory

model.

In this weighted average summarised settlement example, the inventory model is marked to include physical value.



each. 1b. Inventory financial receipt updated for a quantity of 2 at a cost of USD 14.00

each.

2. Inventory physical receipt updated for a quantity of 1 at a cost of USD 10.00

each.

27 | P a g e


each.




consideration). 4b. Inventory financial issue updated for a quantity of 1 at a cost of USD 13.50


consideration).

5a. Inventory physical receipt updated for a quantity of 1 at a cost of USD 14.00 each.


each.

6.Inventory close is performed. During inventory close, Microsoft Dynamics AX will disregard all inventory transactions that are updated only physically. The

summarized settlement principle will be used because only one financial receipt

exists. An adjustment of USD 1.50 will be posted to the inventory transaction that

has been financially issued as of the inventory closing date. After inventory close,

the on- hand inventory will be a quantity of 3 with a running average cost price of USD 15.00.

7a. "Weighted average inventory close transaction" financial issue is created to

sum the settlements of all the inventory financial receipts.

7b. "Weighted average inventory close transaction" financial receipt is created as the offset to 5a.


the weighted average inventory model and the summarised settlement principle without

the Include physical value option.

Key to diagram









28 | P a g e






Red arrows illustrate the receipt transactions being settled to the issue transaction created by the system.

The green arrow represents the offsetting system-generated receipt transaction

to which the originally posted issue transaction is settled

Marking is a process in Microsoft Dynamics AX that allows you to link, or mark, an issue transaction to a receipt transaction. Marking can occur either before or after a



performed.

For example, your Customer Service department accepted a rush order from an



inventory item is reflected in the margin, or cost of goods sold (COGS), for this sales

order invoice.





Before inventory close is performed, these two transactions can still be marked to each

other.

When a receipt transaction is marked to an issue transaction, the valuation method selected for the item's inventory model group will be disregarded and Microsoft

Dynamics AX will settle these transactions to each other.






to the inventory item on the Transactions on Item form and click the Transaction button. Select the issue transaction that you want to mark, and then click the Inventory button



issue transaction.





29 | P a g e



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 USD 21.25



2b before the transaction is posted. This transaction is posted with a cost price of USD 20.00.


7 Inventory close is performed. Since the financially updated transaction is

marked to an existing receipt these transactions are settled to each other and no adjustment is made.



The following diagram illustrates this series of transactions with the effects of choosing the Weighted average inventory model with marking.

Key to diagram








transaction is financially posted into inventory. Each new receipt or issue transaction is designated with a new label.






30 | P a g e

2.4 About Weighted Average Date

Weighted average date is an inventory model based on the weighted average principle,

where issues from inventory are valued at the average value of the items that are

received into inventory for each separate day in the inventory closing period.

When you run an inventory closing with weighted average date, all receipts for a day are settled against a virtual issue, which holds the total received quantity and value for that

day. This virtual issue has a corresponding virtual receipt from which the issues will be

settled. In this way, all issues get the same average cost. The virtual issue and receipt

can be seen as a virtual transfer, called the weighted average inventory closing transfer".

If only one receipt has occurred on or before the date, it is not necessary to value the

average because all issues are settled from it and the virtual transfer will not be created.

Likewise, if only issues occur on the date, there are no receipts from which to value the average, and the virtual transfer will not be created in this case either.

When using weighted average date, you can choose to mark inventory transactions so

that a specific item receipt is settled against a specific issue, instead of using the

weighted average date rule.

We recommend a monthly inventory closing when you use the weighted average date inventory model.

In Microsoft Dynamics AX, weighted average date the inventory costing method is

calculated by the following formula:

Weighted average = (Q1*P1 + Q2*P2 + Qn*Pn) / (Q1 + Q2 + Qn)

During inventory close, the calculation will be executed on a daily basis through the

closing period as illustrated in the following graphic.

Inventory transactions leaving the inventory, including sales orders, inventory journals,

purchase credit notes, and production orders, will take place at an estimated cost price

on the date of posting. This estimated cost price is also referred to as the running

average cost price

On the date of inventory close, Microsoft Dynamics AX will analyze the inventory transactions for previous periods, previous days, and the current day to determine which

of the following closing principles should be used:

31 | P a g e

•Direct settlement

•Summarised settlement

Settlements are inventory close postings that adjust the issues to the correct weighted average as of the closing date.

The following examples illustrate the impact of using weighted average with five different

configurations:

Weighted average date direct settlement without the Include physical value option

Weighted average date summarized settlement without the Include physical value

option

Weighted average date direct settlement with the Include physical value option Weighted average date summarized settlement with the Include physical value

option

Weighted average date with marking

The direct settlement principle used in this version of Microsoft Dynamics AX is the same used for weighted average in previous versions of the product. The system will settle

directly between receipts and issues. Microsoft Dynamics AX uses this direct settlement

principle in certain specific situations:


Only issues have been posted in the period and the inventory contains on-hand items from a previous closing

In the scenario below, a financially updated receipt and issue have been posted. During

inventory close, Microsoft Dynamics AX will settle the receipt directly against the issue,

and no adjustment to the cost price is needed on issue.



each

1b. Inventory financial receipt updated for a quantity of 5 at a cost of USD 10.00 each


each

2b. Inventory financial issue updated for a quantity of 2 at a cost of USD 10.00

each 3. Inventory close was performed using the direct settlement method to settle the

inventory financial receipt to the inventory financial issue.

32 | P a g e

Key to diagram









Each vertical arrow is labelled with a sequential identifier, such as 1a. The identifiers indicate the sequence of inventory transaction postings in the timeline.


Inventory Close.




(receipt).



In the scenario below, several financially updated receipts and issues have been posted

during the period. During inventory close, Microsoft Dynamics AX will evaluate every day to determine how each one should be treated by closing.

The following are illustrated in the graph below:

DAY 1:

1a. Inventory physical receipt updated for a quantity of 3 at USD 15.00 each.

1b. Inventory financial receipt updated for a quantity of 3 at USD 15.00 each. 2a. Inventory physical issue for a quantity of 1 at a running average cost of USD

15.00.

2b. Inventory financial issue for a quantity of 1 at a running average cost of USD

15.00.

The system will use the direct settlement approach for Day 1.

33 | P a g e

DAY 2:

3a. Inventory physical issue for a quantity of 1 at a running average cost of USD

15.00. 3b. Inventory financial issue for a quantity of 1 at a running average cost of USD

15.00.

The system will use the direct settlement approach for Day 2.

DAY 3:

4a. Inventory physical issue for a quantity of 1 at a running average cost of USD

15.00.

4b. Inventory financial issue for a quantity of 1 at a running average cost of USD

15.00. 5a. Inventory physical receipt for a quantity of 1 at USD 17.00 each.

5b. Inventory financial receipt for a quantity of 1 at USD 17.00 each.

Inventory close is performed. The direct settlement will need to be used because there

are multiple receipts crossing multiple days.

7a. A weighted average inventory close transaction financial issue is created at

for a quantity of 2 at USD 32.00 to summarize the settlements of all inventory

financial receipts to date that have not been closed.

7b. A weighted average inventory close transaction financial receipt is created as

the offset to 7a.

Microsoft Dynamics AX will generate and post the summarised inventory transfer

transaction and settle all the receipts for the day and on-hand inventory for previous

days against the summarised inventory transfer issue transaction. All the issues for the

day will be settled against the summarised inventory transfer receipt transaction. The weighted average cost price is calculated to be USD 16.00. The issue will have an

adjustment of USD 1.00 to adjust to the weighted average cost. The new running

average cost price is USD 16.00. The following diagram illustrates this series of

transactions with the effects of choosing the Weighted average inventory model and the summarised settlement principle without the Include physical value option.

Key to diagram




34 | P a g e











Red diagonal arrows illustrate the receipt transactions being settled to the issue

transaction created by the system. The green diagonal arrow represents the offsetting system-generated receipt

transaction to which the originally posted issue transaction is settled.

The direct settlement principle used for weighted average date in this version of

Microsoft Dynamics AX is the same as used in previous versions. The system will settle

directly between receipts and issues. Microsoft Dynamics AX uses this direct settlement principle in certain specific situations:


Only issues have been posted in the period and the inventory holds an on-hand

inventory from a previous closing

In this version of Microsoft Dynamics AX, the parameter Include physical value works

differently with the weighted average date inventory model than in previous versions of

the product.

If the Include physical value box is selected for an item in the Inventory model group form, Microsoft Dynamics AX will use physically updated receipts when calculating the

estimated cost price, or running average. Issues will be posted based on this estimated



In this version of Microsoft Dynamics AX, the parameter Include physical value works differently with the weighted average date inventory model than in previous versions of

the product.


form, Microsoft Dynamics AX will use physically updated receipts when calculating the estimated cost price, or running average. Issues will be posted based on this estimated



In this version of Microsoft Dynamics AX, a new settlement principle has been introduced for weighted average based on the principle that all receipts within in a closing period

are summarised into a new inventory transfer transaction called Weighted average

inventory closing. All the receipts for the day will be settled against the issue of the

newly created inventory transfer transaction. All issues for the day will be settled against the receipt of the new inventory transfer transaction.

35 | P a g e



(receipt).



Marking is a process in Microsoft Dynamics AX that allows you to link, or mark, an issue

transaction to a receipt transaction. Marking can occur either before or after a transaction is posted. You can use marking when you want to be sure of the exact cost


performed.

For example, your Customer Service department accepted a rush order from an important customer. Because this is a rush order, you will have to pay more for this item


inventory item is reflected in the margin, or cost of goods sold (COGS), for this sales

order invoice.




cost for the item. If the sales order packing slip or invoice is posted before the marking

occurs, the COGS will be posted at the running average cost price.

Before inventory close is performed, these two transactions can still be marked to each

other.

When a receipt transaction is marked to an issue transaction, the valuation method

defined in the item's inventory model group will be disregarded and Microsoft Dynamics AX will settle these transactions to each other.






to the inventory item on the Transactions on Item form and click the Transaction button.

Select the issue transaction that you want to mark, and then click the Inventory button and select Marking. The Marking form will open and display all the open receipt


issue transaction.


1a. Inventory physical receipt for a quantity of 1 at a cost price of USD 10.00

each.

1b. Inventory financial receipt for a quantity of 1 at a cost price of USD 10.00

each. 2a. Inventory physical receipt for a quantity of 1 at a cost price of USD 20.00

each.


each.

36 | P a g e

3a. Inventory physical receipt for a quantity of 1 at a cost price of USD 25.00

each.

4a. Inventory physical receipt for a quantity of 1 at a cost price of USD 30.00 each.


each.

5a. Inventory physical issue for a quantity of 1 at a cost price of USD 21.25 (running average of financial and physical updated transactions).


2b before the transaction is posted. This transaction is posted at a cost price of

USD 20.00. 6a. Inventory physical issue for a quantity of 1 at a cost price of USD 21.25.

7. Inventory close is performed. Because the financially updated transaction is


adjustment is made.




the Weighted average date inventory model with marking.

Key to diagram











Inventory Close.



37 | P a g e

2.5 Prerequisites for Standard Costs

This topic covers the basic steps for using standard costs. Subsequent steps depend on

the company's operations, such as a nonmanufacturing environment, a manufacturing

environment without routings, and a manufacturing environment with routings.

To set up standard costs, follow these steps:

1. Create an inventory model group for standard costs.

Use the Inventory model groups form to create a new group for standard costs

and to assign an inventory model of Standard cost. The identifier for the

inventory model group should be meaningful, such as Std Cost. Select the check boxes to indicate that the group should allow financial negative inventory, post

physical inventory, and post financial inventory. This standard cost group will be

assigned to items.

2. Define ledger accounts that are related to standard cost variances.

Use the Chart of Account Details form to define ledger accounts that are related

to standard cost variances. These ledger accounts must be defined before they

can be assigned in the Posting form. The ledger accounts can reflect item groups

and cost groups.

3. Assign ledger accounts to inventory postings that are related to standard cost variances.

Use the Posting form to assign the ledger accounts that are related to standard

cost variances. You can choose whether to specify a variance's ledger account by

item (or item group) and by cost group (or cost group type), or to specify that the ledger account applies to all items and all cost groups. These choices

correspond to cost relations for tables, groups, and all.

Use the Transaction combinations form to enable the use of cost relations (for

tables, groups, and all) before you define the inventory posting rules.

4. Define inventory parameters that are related to standard costs.

Use the Inventory parameters form to define cost control parameters (on the Bills

of materials tab) to define two parameters that are related to standard costs.

Use the Cost breakdown field to select No or Sub ledger. The selection of Sub ledger is termed an active cost breakdown. An active cost breakdown

is critical for calculating, retaining and viewing cost group segmentation

across a multilevel product structure for standard cost items. When the

cost breakdown is active, you can report and analyze inventory, work in

process (WIP), and cost of goods sold (COGS) per cost group in a single level, multilevel or total format. An active cost breakdown means that

activating a manufactured item's cost will result in storing the cost group

segmentation within the item's cost record.

The selection of none for the Cost breakdown field means that cost group segmentation will not be maintained for standard cost items. That is, a

manufactured item's standard cost will be calculated and maintained as a

38 | P a g e

single amount without cost group segmentation, and the cost contributions

of manufactured components will be aggregated into the single amount.

Use the Variances to Standard field to select summarized or per cost group. The selection of per cost group enables you to identify purchase

price variances and production variances by cost group, and also identify

the four types of production variances (the lot size, quantity, price and

substitution variances). The selection of summarized means that you cannot identify variances by cost group, and you cannot identify the four

types of production variances. You can only view a summarized production

variance.

The policy about variance to standard works independently of the cost breakdown policy. That is, you can select a cost breakdown policy of none,

and select variances per cost group, so that production variances by cost

group will still be captured.

5. Create costing versions for standard costs.

Use the Costing version setup form to create one or more costing versions for

standard costs. Each costing version must be designated with a costing type of

standard costs and allow content to include cost data.

6. Prepare an existing Microsoft Dynamics AX customer to use standard costs.

Customers who are using an earlier version of Microsoft Dynamics AX must use the Multisite Activation Wizard, because the standard cost functionality requires

multisite functionality. Standard costs are site-specific. The wizard identifies the

steps that must be completed in order to enable multisite functionality.

Customers who want to change their existing items to a standard cost inventory model must use the Standard cost conversions form.

39 | P a g e

3 Inventory Model Groups

Inventory management > Setup > Inventory > Inventory model groups

Use this form to create and maintain inventory model groups. Inventory model groups

contain settings that determine how items are controlled and handled on item receipts

and issues. They also determine how item consumption is calculated. A model group can

be associated with many items. This facilitates maintenance, since many items are often controlled with the same setup.

4 Tabs

The following tables provide descriptions for the controls in this form:

Tab Description

Overview tab View a list of Inventory model groups or create new ones.

General tab View one specific Inventory model group or create a new one.

Setup tab Set up and maintain parameters for the selected Inventory

model group.

Inventory model Select inventory model.

40 | P a g e

4.1 Overview & General Tabs

Field Description

Inventory

model group

Identification for the inventory model group.

Name Descriptive name for the inventory model group.

4.2 Setup Tab

4.2.1 Negative Stock Field Description

Physical

negative inventory

If selected, negative physical inventory is allowed for the

inventory model group.

Microsoft Dynamics AX does not check whether items are

physically in inventory when items are being picked.

Example

Production is started, but not all items for the production are in inventory. The items have been ordered and delivery has been

scheduled. Alternatively, an order for an item is updated, and even

though the item is not in inventory, it has been purchased and will soon

be in inventory.

Financial negative

inventory

If selected, negative financial inventory is allowed for the inventory model group.

Negative financial inventory is often used for services. If

the check box is cleared, the cost price must be known for the

quantity that is being financially pulled from inventory.

Example

Eight items are invoice updated, and another five are packing-slip

updated, making the physical on-hand inventory 13. When financial

negative inventory is not allowed (the check box is cleared), only eight are available for the invoice updating of a sales order, even though 13

are physically available in inventory.

4.3 Setup Tab

4.3.1 Warehouse Management

Field Description

Quarantine

management

If selected, indicates that items attached to this group are under

quarantine management rules and requirements.

This is used for items that are set aside and awaiting approval for

distribution.

If the check box is cleared, items are not under quarantine

management unless a quarantine order is created manually in

Quarantine orders.

When the item is registered, a quarantine order is generated with

the status Started.

41 | P a g e

4.4 Setup Tab

4.4.1 Ledger Integration

Field Description

Post physical

inventory

If selected, physical item transactions are posted in the ledger.

If the check box is selected, physical item transactions are posted in the ledger in the following manner:

Packing slip is posted if Post packing slip in ledger is selected in Purchase or Sales order parameters or both.

Report as finished is posted if Post report as finished in

ledger is selected in Production orders parameters.

If the check box is cleared, Packing slip and Report as finished

are not posted in the ledger, regardless of the setup that is

selected in the Purchase, Sales, or Production orders parameters or in all three parameters.

Post

financial

inventory

If the check box is selected it Posts the updated financial value

of items in the ledger.

When a purchase order is invoice-updated, the value of the items is posted to the inventory receipt account. When a sales

order is invoice-updated, the value of the items is posted to the

inventory issue and consumption accounts. The posted

inventory value can then be easily reconciled with the related status accounts in the General ledger module.

If the check box is cleared, purchases are posted to the item consumption account when the purchase is invoice updated.

No posting takes place in the inventory receipt account when

purchases are invoice updated. Likewise, no posting occurs in the

item consumption account, or the issue account when sales orders are invoice updated.

Note

If item consumption (COGS) should not be posted when Sales Orders are

invoiced, leave the check box cleared for groups that are associated with SERVICE ITEMS.

When they are left blank, lines in the Movement and Profit/Loss

inventory journals do not generate ledger postings.

Post physical

revenue

If selected, estimated Revenue or Turnover in connection with

Delivery Note updates is posted in the ledger. Balance can figure both a realised, and an expected contribution margin.

Post physical

purchase

If selected it posts the Estimated Purchase in connection with

Delivery Note updates to the General Ledger module.

4.5 Setup Tab

4.5.1 Physical Update

Field Description

42 | P a g e

Registration

requirements

Select whether item receipts must be registered before inventory

is physically updated.

When selected, the status of the item receipt inventory

transaction must be Registered before the item's Delivery Note is

updated.

This field is generally used with Warehouse Management.

Registered items are part of physical inventory. You can register

items in the Warehouse management journals, or by clicking Inventory, then Registration on the relevant journals and orders.

Picking requirements

When selected, item issues must be picked before inventory is physically updated.

The item issue inventory transactions must have the status Picked

before the Delivery Note is updated.

This procedure is generally used with Warehouse Management.

Picked items are a part of physical inventory. Items can be picked

in the Warehouse Management system with dispatches and

picking routes, or they can be picked by clicking Inventory and

then Registration on the relevant journals and orders.

Note

If you create a direct delivery from a sales order, then the Picking requirements parameter is ignored because items are transferred directly

from the vendor to the customer without ever physically coming into your company.

Receiving requirements

When selected, Item Receipts must be Physically updated before they can be Financially updated.

A Delivery note must be entered and posted before the

corresponding Vendor Invoice can be posted.

If there is a difference between the received quantity on the Delivery Note and the Invoiced quantity on the Invoice, an icon is

shown in the Delivery Note quantity match column in the Posting

invoice form (Accounts payable > Periodic > Purchase order

update > Invoice).

Deduction

requirements

When selected, Item Deductions must be Physically updated

before they can be Financially updated.

A Delivery Note must be entered and posted before the corresponding Vendor Invoice can be posted. If there is a

difference between the deducted quantity on the Delivery Note

and the negative Invoiced quantity on the Invoice, an icon is

shown in the Delivery Note quantity match column in the Posting

invoice form (Accounts payable > Periodic > Purchase order

update > Invoice).

4.6 Setup Tab

4.6.1 Reservation

Field Description

Date-

controlled

If Selected it activates Date-controlled Reservation. Select if you

want the date of receipt of items to be taken into consideration when reserving items. If the check box is cleared, available

43 | P a g e

inventory with the lowest batch number is reserved.

Backward from ship

date

Executes Reservation backwards from the Delivery date.

Select this check box if you want to Reserve available inventory

batches with the date of receipt that is nearest to the sales order

delivery date. If the check box is cleared, available inventory

batches with the first date of receipt are reserved.

Note

Backward from ship date first reserves items that are available on

inventory. If no items are available on inventory, it reserves upon purchase order lines with the date of receipt that is nearest to the sales

order delivery date.

4.7 Stock Model Tab

4.7.1 Stock Model

Field Description

Stock Model Select from FIFO, LIFO, LIFO date, Weighted av., Weighted avg.

Date, Standard cost

4.8 Stock Model Tab

4.8.1 Cost Price

Field Description

Include

physical value

If selected, Physically updated transactions are included in the

calculation of the Average Cost.

At Inventory Closing the parameter will be considered according

to the inventory valuation method.

The following inventory valuation methods will consider the

parameter during inventory close:

FIFO

LIFO

LIFO date

The following inventory valuation methods will NOT consider the

parameter during inventory close:

Weighted avg.

Weighted avg. date

Fixed receipt

price

Adjusts Item Receipt and Issue values to the Fixed Receipt Price

in the Item table when posted. If the Receipt price is different

from the Fixed Receipt price, inventory is updated with the Fixed

Receipt price, and the difference is posted to the account for Fixed Receipt price Loss or Profit.

Items are posted at the Current receipt price. Upon Closing, Issue

transactions are value-adjusted according to the Inventory Model

groups that are selected in Inventory model group.

5 End of Document

Documents

AX2009 - Fact Sheet - Inventory Closing - Average Cost Price - Inventory Model Groups v1.0