The following document will clarify the calculation of warehouse cost in the Perfection Management system.

Warehouse cost is recalculated as necessary whenever:

1.  Receiving is posted

2.  Inventory is transferred between locations by a transfer PO.

3.  Case lot breakdown forces a larger unit of measure to break into smaller units of measure.

The calculation for 1 and 2 is the same:  The system calculates the new warehouse cost by:

1. Calculating the current value of the inventory on hand – This is done by multiplying the current QOH by the current warehouse cost.

2. Calculating the value of the inventory being received – This is done by multiplying the quantity to receive by the cost of the item from the receiving.

3. Adding these “values” together to determine the total value.

4. Dividing the total value by the total new QOH after the receiving is posted.

Using these symbols, the 4-step calculation process is shown below:

CQOH = CURRENT QUANTITY ON HAND (before receiving)

CWC = CURRENT WAREHOUSE COST (before receiving)

CTV = CURRENT TOTAL VALUE OF INVENTORY (before receiving)

QR = QUANTITY CURRENTLY BEING RECEIVED

RC = RECEIVING COST

RTV = TOTAL VALUE OF RECEIVED MERCHANDISE

TQOH = TOTAL QUANTITY ON HAND AFTER RECEIVING

FTV = FINAL TOTAL VALUE OF INVENTORY (after receiving)

WC = NEW WAREHOUSE COST AFTER RECEIVING

Step 1 –   CTV = CQOH * CWC

Step 2 –   RTV = QR * RC

Step 3 -   FTV = CTV + RTV

Step 4 –   WC = FTV / TQOH

NOTE:  of course:  TQOH = CQOH + RC