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Inventory: Negative Unit Cost value on Inventory Items and its impact when processing invoices

Created on  | Last modified on 

Summary

Let's show you how to fix having negative Unit Cost value on Inventory Items and its impact when processing invoices in Sage 200 Evolution.

Description

This article explains why a negative cost value may be noticed on the Inventory | Maintenance | Inventory Item Maintenance screen,  as can be seen below.

In addition, we’ll also be discussing the consequences of posting inventory related transactions on stock items with negative cost values.

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Resolution

Let’s explain this issue by making use of the following scenario:

1. The example Inventory Item (SAM-X) makes use of the Average Unit Cost costing method.

2. The current Average Unit Cost of this item is R90, having 10 units in stock.

3. A Return to Supplier transaction is processed for 7 units at a higher cost value than the current Average Cost, e.g. at R500 (VAT Excl.)

4. The result is therefore a negative Average Cost Value as can be seen below

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5. If you now select this Item on a Sales Invoice, notice the following warning message (even before processing) as displayed below and you can click the OK button to continue.

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However, please note:

If you still accept the current negative Average Cost value and continue to process the invoice, a potential wrong Gross Profit

may be calculated as a result, in addition to having incorrect Inventory Control and Cost of Goods Sold GL account movements.

      For instance, in this case the invoice is processed as below.

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     As a result, if you drill down on the invoice audit trial (from the Inventory Enquiry screen), you’ll notice the following scenario:

  • The Stock account is debited (R750). Usually the Stock account is CREDITED when invoicing any stock items.
  • The Cost of Goods Sold account is Credited (R750).  Usually the Cost of Goods Sold account is DEBITED when invoicing any stock items.

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     You should therefore immediately do the following when the warning message in step 5 is observed:

  • Halt the processing of invoices (and all other transactions).
  • Evaluate the true cost of the stock item and process an Inventory | Transactions | Adjustments to correct the stock item’s cost value. 

     Continue to process invoices and other transactions on this item.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disclaimer:  These articles refer to possible solutions and a platform to share information. Each article describes a method that solved a query (knowledge gathered from previous sites) and how Sage Evolution should operate. These articles make reference to a specific Sage Evolution version, however the thought process can be generalised. Please note the information contained in these articles should be treated as guidelines and adapted to accommodate differences in business processes and IT environments. Articles may not be applicable to all environments. If this article did not resolve your query please contact the Sage Evolution Support Department directly on: +27 (0) 86 112 6837.