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Cost Adjustment

This article is protected against manual editing because it is automatically generated from Openbravo meta-data. Learn more about writing and translating such documents.
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Contents

Introduction

Cost Adjustment window allows to review product transaction's cost adjustments caused by changes in purchase prices, landed cost allocation or manual/negative cost corrections.

Once the cost of a "Product Transaction" has been calculated by the costing background process and according to what is configured for the product(s) in the corresponding Costing Rule, it cannot be recalculated or deleted.
However and under some circumstances the calculated cost of a product transaction would need to be adjusted, for instance the purchase price of a purchase transaction changes after receiving the product.
If that is the case the calculated cost of the receipt would need to be adjusted to the new purchase price.

Cost Adjustments feature is in charge of managing adjustments created on already calculated transaction's cost.

It is important to remark that this feature takes into account the "costing algorithm" used to calculate costs, therefore it behaves differently depending on:

As a consequence of the above "Cost Adjustment" window manage cost adjustments created for products and therefore products transactions valued at "Average" cost algorithm.

There are different types of "cost adjustments sources" which lead to get the correct "average" cost of a product.
For instance, receipt transactions that were not booked in the same order than happened or receipt transactions that require to add landed costs to its already calculated cost, all of that will impact and therefore require that the "average" cost of the product changes.

It is important to remark that:

Above implies that for instance a "Price Difference Correction" cost adjustment header can have two adjustment lines, one set as "Is Source" = Yes and the other one set as "Is Source" = No.

Let us imagine an scenario when there is only one receipt transaction of 1 unit of a product, valued at 10.00 €/unit. In that case receipt costs are the ones below, which can be reviewed in the "Product" window, Transactions tab:

A manual cost correction set as "Unit Cost" = "Yes" is booked for the receipt for an amount of 2.00 €. That correction creates a cost adjustment that changes the cost of the receipt as shown below:

New average Cost of the product = Total Cost / Stock = 12.00 € / 1 unit = 12.00 €/unit

After that purchase price changes from 10.00 €/unit to 12.00 €/unit.
That change in the price is a unit cost adjustment, which creates a 0.00 € adjustment because the unit cost of the transaction is already 12.00.
This implies no change in the average cost of the product, it remains as 12.00 €/unit

However, let us imagine now that the manual cost correction booked for the receipt for an amount of 2.00 € was set as "Unit Cost" = No, that is an extra cost which needs also to be taken into account. That correction changes the cost of the receipt as shown below, unit cost does not change:

After that, purchase price changes from 10.00 €/unit to 12.00 €/unit.
That change in the price creates a cost adjustment in the receipt of 2.00 = 12.00 - 10.00 €, therefore calculated costs of the receipt change:

Now this new scenario, implies a change in the average cost to 14.00 €/unit, this new average cost includes an extra cost of 2.00 €/unit.

As briefly mentioned above, Openbravo supports different sources of cost adjustments with the aim of covering different live scenarios. Those different types of cost adjustments sources are explained in the next section.

Header

Cost adjustment documents are automatically created by either the "Costing Background" Process or the "Price Correction Background" process as applicable, depending on the source of the adjustment.

Once automatically created can be reviewed in this window.

CostAdjustment Header.png

Some relevant fields to note are:

All of them are going to be explained in detail in the following sections.

Backdated Transaction

The source of this cost adjustment is a product transaction (i.e a goods receipt) that should have been booked in a previous date, but it was not.

As a consequence, the calculated cost of the transactions dated on a date after that given previous date need to be adjusted, same as the calculated "Average" cost of the product.

This cost adjustment source type do not apply to products valued at "Standard" cost.

The "Standard" cost of a product remains as it was defined because the cost of a "Standard" valued product is always the same, regardless the date when a transaction of that product is booked.

In case of a product valued at "Average" costing algorithm:

Transactions that should have been booked in a previous date lead to the creation of "Backdated Transaction" cost adjustments.
A header and line(s) in the Cost Adjustment window are automatically created with the corresponding adjustments.

This adjustment type changes the "Unit Cost" of the product's transactions as well as the "Total Cost" and therefore the "Average" cost of the product.

Backdated transaction cost adjustments are created by:

Both ways, it is possible to enter a "Fix Backdated From" date which should not be part of a closed period.

Once Fix Backdated Transaction process is enabled in the corresponding costing rule, backdated transaction cost adjustments are automatically calculated by the Costing background process if applicable.


Backdated Adjustments Posting

A backdated cost adjustment can be post to the ledger in this window.

In our example above, the last receipt with movement date 02/01/2015 is the source of a backdated transaction cost adjustment that adjust the cost of the product sold from 105,00 €/unit to 102,50 €/unit

That adjustment can be post to the ledger. Posting will look as shown below:

Account Debit Credit
Product Asset Adjustment amount
Cost of Goods Sold Adjustment amount

Landed Cost

The source of this cost adjustment is booking additional costs that need to be distributed and therefore allocated as additional product costs.

Landed cost are cost such as shipping, insurance, customs charges and other costs needed to place the product in the organization's warehouse.

Landed cost adjustments change the calculated cost of receipt transactions by changing its "Total Cost", same way the "Average" cost of the product involved also changes.

The "Unit Cost" of the receipt transaction does not change as this type of adjustments is not a unit cost adjustment but an extra cost.

This cost adjustment source type do not apply to products valued at "Standard" cost, in the sense that:

For instance:

There is no need to run any specific background process or enable any preferences to get a "Landed Cost" cost adjustment.

"Landed Cost" cost adjustments are created after processing the corresponding landed cost document in the Landed Cost window, or after processing landed cost matching
A header and line(s) in the Cost Adjustment window of this cost adjustment type is automatically created with the corresponding adjustment.

As already mentioned, landed cost adjustment does not change the "Unit Cost" of product's transactions but its "Total Cost", same way as the "Average" cost of the product. This means that:


Landed Cost Adjustments Posting

Landed cost adjustments can be post to the ledger in the Landed Cost window, whenever those adjustments have been created for products included in a Goods Receipt transaction.

Moreover, landed cost adjustments can also be created for products included in a Goods Shipment transaction.

Manual Cost Correction

The source of this cost adjustment is a manual change of the cost of a specific product transaction.

This adjustment type only applies to product transactions valued at "Average" cost. It make not sense to manually change the cost of a transaction valued at "Standard" cost.

For instance:

There is no need to run any specific background process or enable any preference to get a "Manual Cost Correction" cost adjustment.

"Manual Cost Correction" cost adjustments are created after changing the cost of a product transaction in the Product window, "Transactions" tab, by using "Manual Cost Adjustment" process button.
A header and line(s) in the Cost Adjustment window of this cost adjustment type is automatically created with the corresponding adjustment.

This adjustment type changes the "Total Cost" of the product transaction, however product transaction "Unit Cost" can either be changed or not, depending on what the end-user wants to get.

There is a check-box named "Unit Cost" that it shown whenever "Incremental" check-box is selected:

For additional information please review Manual Cost Adjustment article.

Manual Cost Correction Adjustment Posting

This type of adjustment can be post to the ledger in this window.

In our example above, "movement from" transaction cost is changed (increased) manually by the end-user, therefore the cost of the "movement to" transaction needs also to be changed (increased).

That adjustment can be post to the ledger. Posting will look as shown below:

"Movement From" transaction adjustment:

Account Debit Credit
Warehouse Differences Adjustment amount of "Movement From" transaction
Product Asset Adjustment amount of "Movement To" transaction


"Movement To" transaction adjustment:

Account Debit Credit
Product Asset Adjustment amount of "Movement To" transaction
Warehouse Differences Adjustment amount of "Movement To" transaction

Negative Stock Correction

The source of this cost adjustment is booking a transaction, i.e a goods shipment, that turns the stock of a product into a negative quantity. This type of correction is only implemented for "Average" costing calculation.

At the time of booking a new receipt of that item, regardless if that receipt turns item stock to a positive/negative/zero value, a negative cost correction adjustment is created and related to that new receipt, to get that the stock remaining of that product is valued at the last purchase price, in the case of "Average" cost calculation.

For instance:

A negative stock correction cost adjustment will be created whenever an incoming transaction for the product such as a goods receipt is booked. That adjustment will be allocated to the goods receipt.

This adjustment type does not change the "Unit Cost" of the receipt but its "Total Cost" same way as the "Average" cost of the product involved. This means that:

There are two actions to take to get negative stock correction cost adjustments:

Negative Stock Correction Adjustment Posting

This type of adjustment can be post to the ledger in this window.

In our example above, an adjustment of this type is created whenever a new incoming transaction such as a goods receipt is booked for the product having a negative stock.

That adjustment can be post to the ledger. Posting will look as shown below in the case of a negative adjustment amount, otherwise in case of a positive adjustment amount:

Account Debit Credit
Warehouse Differences Adjustment amount
Product Asset Adjustment amount

Price Difference Correction

The source of this cost adjustment is a change in either the purchase price of an order or the purchase price of an invoice after receiving the goods.

Price Difference Correction is launched only for Transactions of Type Receipt. Other Transactions, such as Return Material our Outgoing Transactions are not taken into account, since they should not modify the Average Cost due to a Price Correction.

Those goods were received at a price that has changed, therefore the calculated cost of the receipt needs to be adjusted, same as the calculated "Average" cost of the product.
"Standard" cost would remain as it was set.

For instance:

Changes in purchase price leads to the creation of "Price Difference Correction" cost adjustments.
A header and line(s) in the Cost Adjustment window of this cost adjustment type is automatically created with the corresponding adjustment.

This adjustment type changes the "Unit Cost" and the "Total Cost" of the transactions, same as the "Average" cost of products.

"Price Difference" correction adjustments can be performed "automatically" or "manually":

As shown in the image below, this process allows to select the Organization for which this process needs to be run, enter a given movement date and select a product or set of products for which price difference correction cost adjustments would need to be create.

ProcessPriceDifferenceadjustment2.png

Additionally, the Costing Background Process can also create price difference correction cost adjustments, only if:

Price Difference Correction Adjustment Posting

This type of adjustment can be post to the ledger in this window.

In our example above, a change in the purchase order price (increase) implies that both the calculated cost of the "Goods Receipt" and the calculated cost of the "Goods Shipment" need to be adjusted same as the "Average" cost of the product.

That adjustment can be post to the ledger. Posting will look as shown below :

Goods Receipt adjustment

Account Debit Credit
Product Asset Goods Receipt Adjustment amount
Invoice Price Difference Goods Receipt Adjustment amount

Goods Shipment adjustment


Account Debit Credit
Cost of Goods Sold Goods Shipment Adjustment amount
Product Asset Goods Shipment Adjustment amount

Line

A cost adjustment document can have as many adjustment lines as products included in the receipts to which landed cost have been allocated.

There are two types of cost adjustments transactions:

CostAdjustment Line.png

Some relevant files to note are:

Accounting

This tab provides Cost Adjustment accounting information.

CostAdjustment Accounting.png

Ledger entries shown in this tab are different depending on the source of the adjustment but landed cost posting that it is managed in the Landed Cost window.
Landed cost adjustment lines are always created as "Need Posting" = No.

See below some examples of each cost adjustment type:


Price correction cost adjustment caused by a decrease in the purchase price

Account Debit Credit
Invoice Price Variance Cost Adjustment amount
Product Asset Cost Adjustment amount


Price correction cost adjustment caused by an increase in the purchase price

Account Debit Credit
Product Asset Cost Adjustment amount
Invoice Price Variance Cost Adjustment amount


Backdated Transactions adjustment on a product's goods receipt transaction.
Product's cost gets decreased.

Account Debit Credit
Warehouse Differences Cost Adjustment amount
Product Asset Cost Adjustment amount


Backdated Transactions adjustment on a product's goods shipment transaction.
Product's cost gets decreased.

Account Debit Credit
Product COGS Cost Adjustment amount
Product Asset Cost Adjustment amount


Negative correction adjustment which implies an increase of product's cost.

Account Debit Credit
Product Asset Cost Adjustment amount
Warehouse Differences Cost Adjustment amount


Manual Cost correction adjustment caused by a manual increase of product's cost.

Account Debit Credit
Product Asset Cost Adjustment amount
Warehouse Differences Cost Adjustment amount



Full list of Cost Adjustment window fields and their descriptions is available in the Cost Adjustment Screen Reference.

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