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# By-Product Costing Using Average Method / Revaluing Inventory

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Userlevel 4
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We start with 60x288 raw sheets of metal and cut them down to 60x248 (just as one example) in high volumes.  The 60x248 makes the primary part #, the 60x40 is a usable drop/remnant.  I would like to inventory these 60x40 “drops” (by-product) and give them value, because we’ll use them later for plasma cutting small parts.

When creating the BOM for the primary part #, I am consuming the entire 60 x 288 material, and then adding the by-product (60x40) as a negative quantity.  This works great for inventory tracking purposes, because the by-product is added to inventory each time we do a Move on the primary part #.

My concern is costing.  We use average costing, so do not revalue our inventory (as you would in a standard costing environment).  The value of steel fluctuates widely, and therefore the theoretical cost of that 60x40 drop should change relative to the cost of the 60x288 raw sheet.  However, in order to accomplish this, I have to manually do calculations for a 60x40 portion of a full sheet and update the cost on the stock item.  I can manually calculate theoretical costs of these drops, say quarterly, but the problem is that I have to revalue my drops inventory every time I do that (because Acumatica looks to AVERAGE COST on the stock item the by-product receipt cost).  Acumatica cannot take into account that for the last quarter I was adding drops into inventory at \$100/ea, and now I want to add them into inventory at \$150/ea over the next quarter… I actually have to revalue my entire existing inventory of the drop to be \$150/ea, so that the average cost gets updated (which will then make sure drops going forward will be added into inventory at \$150/ea).

1. Is there any way for Acumatica to look to LAST COST instead of AVERAGE cost when installing by-products into inventory?  This would then behave exactly like purchase/production receipts under average costing because you would continually introduce receipt costs different from existing inventory, but the system would continually average your new on hand inventory.  This is assuming I periodically evaluate what the “standard” cost should be of all of our by-product Stock Items.
2. Even better, is there a way to specify somehow that a 60x40 by-product is 13.89% of the raw sheet, and will take 13.89% of the cost of the Materials transaction for the primary part # and put it into the by-product?  This would eliminate the need to periodically calculate what the “standard” cost should be of all of our by-product Stock Items.
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Best answer by andrestamour43 6 December 2023, 00:13

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Userlevel 5
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@danielklumpp

One option is to change the Average Default Returns Cost on the warehouse setting to change how by-products are costed (even though the transaction is an IN Receipt)

Another option is to set the unit price manually on the Materials screen which becomes editable for by-products.

I assume these are two distinct parts (Whole sheet vs Drop) so I do not know of a way to pursue the automatic % calculation but maybe someone else has an idea.

Userlevel 4
+1

This may work for our by-products, however it may produce unwanted behavior for other production orders that have negative quantities, such as when a customer selects an upgraded axle on our trailers (production order returns the standard axle to inventory [should be at average cost, not last cost] and pulls the upgraded axle from inventory.  So we have conflicting objectives in our environment.  But thank you for pointing out the Avg Default Returns Cost method, I didn’t know that was a feature.

Userlevel 7

Hi @danielklumpp were you able to find a solution? Thank you!

Userlevel 5

Thoughts - since you’re already revaluing the entire drops inventory to \$150, you could carry the drops SI at standard cost, create a drops BOM specifying 1 drop = 13.89% of a raw sheet, then use Cost Roll + Update Standard Costs to flush the rolled cost into your standard cost.

Put in an import scenario automation schedule to run both processes daily, and technically your standard drop cost will be updated on a daily basis based off the current rolled standard cost. Any issues of the drop will also consume based on todays standard cost.

The downside is that old drops at \$100 get revalued to \$150, but you’re currently already adjusting old stock to \$150 manually using average costing, so this would be similar and save some manual work in the process.

Userlevel 4
+1

Thanks for putting thought into that, @kokjietan.  Per GAAP, a company should not use Average and Standard Costing at the same time, so I think I will go with @andrestamour43 solution, and accept the risk of returns being costed at Last Cost (I would rather have Average, but when looking at the whole picture, I’d more like have BY-PRODUCTS costed at Last Cost than I would Returns at Average).