Invoice Price Variations for Average PO costing method

Description

Currently, the system is designed to post invoice price variations (IPV) occurring between PO and Vendor invoice back into inventory and updates the costing records, which is OK as long as there is sufficient stock coverage and no quantities have been sold to the customer between Material Receipt and the invoice containing price variations. Problems arise if there is insufficient stock coverage and the entire IPV is posted back to inventory. This will distort our Inventory value because the entire IPV will be distributed to the remaining stock quantity. This is an incorrect accounting treatment. What the system should do is to determine how many quantities are still on stock on only allocate the proportional IPV back to inventory while the rest of the IPV shall get posted to a price variation account in the P/L. As an example, the following link explains how this works in an SAP environment:
https://help.sap.com/saphelp_46c/helpdata/en/a8/b994d9452b11d189430000e829fbbd/frameset.htm

The attached document contains a step-by-step simulation which explains today's situation and the associated problems.
Based on example values in the above document, here are the requirements on how the system should behave in terms of accounting and costing treatment:

Matched Invoice
NIR = +50 (Not Invoiced Receipts)
IC = -60 (Inventory Clearing)
INV = (1*[12-10]) = +2 (Inventory Asset)
IPV = (4*[12-10]) = +8 (Invoice Price Variance)

The resulting Average PO cost would be:
Scenario Init: 5 with $50 total value => $10/piece MAP (Moving Average Price or Average PO)
After Ship: 1 with $10 total value => $10/piece MAP
After Inv: 1 with $12 total value => $12/piece MAP (where $12 is derived from $10 from After Ship + $2 from Matched Invoice inventory adjustment)

Please kindly help to resolve this issue.

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Michael Powacht
February 4, 2020, 4:20 AM

Thanks Deepak, please attach your patch to this JIRA ticket, we download from here and test ti in our development environment.

Deepak Pansheriya
February 19, 2020, 11:08 AM

in posting example you gave for match invoice posting having price variance as below

Matched Invoice
NIR = +50 (Not Invoiced Receipts)
IC = -60 (Inventory Clearing)
INV = (1*[12-10]) = +2 (Inventory Asset)
IPV = (4*[12-10]) = +8 (Invoice Price Variance)

Is it good idea to record MAP to CoGS instead of in Invoice price variance. Doing so will help in creating profit report for product and have to deal with single account.

/ your feedback are appreciated too.

Michael Powacht
February 20, 2020, 2:57 AM

Hello Deepak, back when I raised this JIRA the example of using IPV (Invoice Price Variance) was borrowed from the posting logic in SAP.
You are right, in iDempiere the logic is somewhat different:
iDempiere's P/L GL INVOICE PRICE VARIANCE (defined in Accounting Schema>Default and Product Category>Accounting) seems to be used only in products with costing method STANDARD COSTING when the invoice price differs from the standard cost.
For products with costing method AVERAGE PO (the one we are dealing with in this ticket), any kind of cost variance between MR and Invoice - including currency rate differences and invoice price variances - are going to P/L GL AVERAGE COST VARIANCE (also defined in Accounting Schema>Default and Product Category>Accounting), if there are no stock quantities (no stock coverage).

So coming back to your question, my suggestion would be to follow today's logic and use P/L GL AVERAGE COST VARIANCE for both currency rate variances and invoice price variances. Since it can be assumed that the insufficient stock quantity situation is caused by product sales, GL AVERAGE COST VARIANCE can be mapped/interpreted as COGS in the financial statements. I don't know why this variance GL account is referred to as AVERAGE COST VARIANCE but I wouldn't want to break with traditions so I suggest we leave it unchanged.

Any other ideas welcome.

Heng Sin Low
August 22, 2020, 11:35 AM

Yes, it should be Average Cost Variance instead of Invoice Price Variance. If I’m not mistaken, the Average Cost Variance concept is borrow from Oracle Financial.

Deepak Pansheriya
August 22, 2020, 6:46 PM

please note that test cases are documented here.

Assignee

Deepak Pansheriya

Reporter

Michael Powacht

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