How Cost Variance Account in Average Costing is Used with Negative Inventory (Doc ID 467715.1)

Last updated on AUGUST 26, 2024

Applies to:

Goal

When Inventory quantity goes negative, the inventory valuation account was credited for the full amount reflecting inventory valuation at negative dollars.

Expect the Cost Variance account in the Organization Parameters would be credited for the amount of the negative quantity times the current weighted average cost for the amount that exceeded what was in the inventory valuation account.

An Example:

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1. Beginning On Hand Quantity = 0
2. Executed miscellaneous receipt for Item 184968 for a quantity of 10, at a
value of $1 each for a total debit to inventory valuation of $10.
3. Executed a miscellaneous issue for Item 184968 for a quantity of 20 at a
value of $1 each for a total credit to inventory valuation of $20.
4. This credit of $20 should have been broke out into a credit of $10 to inventory valuation
and a credit of $10 to the cost variance account.
5. The on hand quantity after number 2 is as follows:

On Hand Quantity = -10
Inventory Valuation Dollars = -10

Solution

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