When standard cost is in used, the inventory value is based on the standard cost set up in the Item card. Any price difference than the standard cost will be posted as variance. Let's consider the following example:
1) Create a Purchase Order in Cronus database from Vendor 10000.
2) Select Type = Item and No. = 1110 in the Purchase Line. Navision will automatically filled the Direct Unit Cost Excl. SST field and Unit Cost (LCY) field with 1.05, which is pulled from Item Card's Standard Cost.
3) Change the Direct Unit Cost Excl. SST to 2.00.
4) Enter 20 into the Quantity field.
5) Post the Purchase Order as received and invoiced.
Now, Open Item Card and browse to Item 1110 - Rim. Click on Item --> Entries --> Ledger Entries. Notice that Navision has posted 21.00 to Cost Amount (Actual) field, which is (20 x 1.05) instead of 40.00 (20 x 2.00). Click on the 21.00 to drill-down to the Value entries.
The actual acquisition cost is 40.00 but the inventory is valued at 21.00. The difference of 19.00 is posted with the Value Entry Type of Variance.
When we post the Inventory to G/L, the following G/L Entries will be created:
-40.00 Direct Cost Applied Account (GENERAL POSTING SETUP)
+40.00 Inventory Account (INVENTORY POSTING SETUP)
-19.00 Inventory Account (INVENTORY POSTING SETUP)
+19.00 Purchase Variance (GENERAL POSTING SETUP)
Please note that the net effect are:
-40.00 Direct Cost Applied Account
+21.00 Inventory Account
+19.00 Purchase Variance Account
Another set of G/L Entries posted are:
+40.00 Purchase Account (GENERAL POSTING SETUP)
+04.00 Purchase SST Account (SST POSTING SETUP)
-44.00 Payable Account (VENDOR POSTING SETUP)
If we add additional cost to the purchase such as freight cost, the variance will also change accordingly.
1) Create a Purchase Order from Vendor 10000.
2) Add a purchase line of Charge (Item) for item P-FREIGHT.
3) Enter 10 in the Direct Unit Cost Excl. SST field.
4) Click on Line --> Item Charge Assignment.
5) Click on Functions --> Get Receipt Lines.
6) Select the line with 20 PCS of Items 1110 and then click on the OK button.
7) Enter 1 in the Qty. to Assign field.
8) Close the Item Charge Assignement (Purch) screen.
9) Post the Order as Received and Invoiced.
Now, open Item Card and browse to Item 1110 and then open the Item Ledger Entries. You can see that the Cost Amount (Actual) remain at 21.00. Drill down to the Value Entries, you will notice that Navision has created another Direct Cost entry with Cost Amount (Actual) = 10 and Cost per Unit = 0.50. At the same time, Navision also created a Variance entry with Cost Amount (Actual) = -10.00 and Cost per Unit = -0.50. So, the net off effect still 21.00.
On the G/L Entries side, we will get:
-10.00 Direct Cost Applied Account
+10.00 Inventory Account
-10.00 Inventory Account
+10.00 Purchase Variance Account
+10.00 Purchase Account
+01.00 Purchase SST Account
-11.00 Payable Account
After all the posting, the net effects are as follows:
-50.00 Direct Cost Applied Account
+21.00 Inventory Account
+29.00 Purchase Variance Account
+50.00 Purchase Account
+05.00 Purchase SST Account
-55.00 Payable Account
At the end, the Inventory Account still remain at 21.00, which is based on the standard cost.