In Receiving, Cost variance can be captured from the difference between Average Cost (price code 99) and Receiving Cost. This may be useful for some companies that protect Average Cost from being recalculated. The purpose of this then would be to identify the cost difference in a Cost Variance account in the general ledger, and then reconcile it periodically.

In Accounts Payable, Cost variance can be captured when the voucher gross amount is changed. The program will ask if a cost variance should be recorded. The purpose of this is to identify a change between the voucher amount and the actual invoice amount from the vendor.

The customer does not have to use both the Receiving and AP cost variance. They can use one or the other or both depending on their needs.

Setups:

4.3.4 – Receiving Setup

       Uninvoiced Receivings – Field 1: Enter the Uninvoiced Receivings general ledger account. All the vendors must have this account in the Normal Chart of Account (field 12) in Vendor Entry (7.6.1).

       Update General Ledger – Field 4: Enter <Y> to post to general ledger.

       Update Accounts Payable – Field 5: Enter <Y> to create a voucher automatically.

       Inventory Account – Field 6: Enter the default inventory general ledger account. The precedence of inventory account is: Inventory Part Number Inventory Account (5.1.1, <G> at Enter Selection in a part number), Receiving Setup Inventory Account (this field), then AR Setup (10.2.2.1, field 8) Inventory Account.

       Factor Freight into Cost – Field 11: Enter <N> to not factor freight into cost.

       Prevent Update to Warehouse Cost – Field 12: Enter <Y> to prevent update to warehouse cost.

Cost Variance Account – Field 14: Enter the general ledger cost variance account.

Inventory Setup (10.2.4.2) should be setup also.

       There are other setups that might be required for this do what the customer wants it to do. Please test thoroughly before implementing.

Example: Average Cost = 1.00, Receiving Cost = 1.10

D                                                                              C

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Inventory       1.00          Uninvoiced Receivings 1.10

Cost Variance  .10

4.1.4 – Received Merchandise Summary Report. This program will now ask to “Print items with cost variance?” if running a report to the Printer for Detail. Use this to identify the source items that caused the cost variance.

10.2.1 – Accounts Payable Setup

       AP Variance Account – Field 4: Enter the AP variance account.

Example: Voucher Gross Amount = 1.10, Actual Invoice Amount = 1.15

D                                                                                       C

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Uninvoiced Receivings  1.10          Accounts Payable 1.15

AP Cost Variance             .05

Once these Cost Variances are captured it is up to the customer to do the correct manual adjustments to correct these amounts.