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Correct Average Cost

We are using QB Desktop Premier 2018

 

When we setup our inventory we have a few items that were entered at a very wrong cost, when those items were sold, it created a transaction recording that transaction.

 

And now it lists the average cost as the incorrectly. (of course)

 

We would like to do the following:

Correct the cost in the Inventory Edit item, we know how to do this.

Go back and find the few transactions that use the incorrect cost, and correct those. One by One.

Have inventory now show the proper correct average cost, in the reports.

 

Thanks

Aaron

Solved
Best answer 02-18-2019

Accepted Solutions
Not applicable

Re: Correct Average Cost

Thanks Everyone, we've come up with a solution we like.

 

The few items with a messed up cost were located, and then corrected.

Then only after it is fixed, go into the first Invoice with the item on it, remove it, and save the order, then add the item back and re-save the order.

 

The costs are re-calced and the problem solved.

 

Ta-Daaaa, just like magic.

 

And no, the client is not the US Government, so there is no long term GAAP paradox.  :)

 

Thanks Again to everybody who answered.

11 Comments
Established Community Backer ***

Re: Correct Average Cost

Sounds like the right thing to do to make all correct, but I would think if the item has been sold it is no longer IN inventory for you to edit cost nor to be included in the average cost to be computed

BRC
Established Community Backer ***

Re: Correct Average Cost

The cost is normally based on your purchases of that item.  So, if you record those purchases correctly, then the cost will adjust. If the initial inventory balances were set up with adjustment transactions, then edit those transactions on order to update the average cost.

BRC
Established Community Backer ***

Re: Correct Average Cost

@Teri

RE: Sounds like the right thing to do to make all correct, but I would think if the item has been sold it is no longer IN inventory for you to edit...

 

You can edit your purchases at any time, even after you have sold the items, and QB will adjust the average cost and 'ripple' the costs forward to the sales.

Established Community Backer ***

Re: Correct Average Cost

Interesting, since it would be too late to bill customer at "cost" plus mark-up at that point. 

That would not pass audit in my industry, since that is the whole point of average costing. 

BRC
Established Community Backer ***

Re: Correct Average Cost

RE: Interesting, since it would be too late to bill customer at "cost" plus mark-up at that point. 

 

Yes, you can screw that up. If you're relying on average cost to set your sales price and you didn't record your purchases correctly, then the cost might be wrong.  While you may not be able to fix the sale, that doesn't mean you shouldn't fix the purchase.

 

RE: That would not pass audit in my industry, since that is the whole point of average costing. 

 

What wouldn't pass an audit? And why not? 

There is no point (?) to average costing or any other costing method except to record the costs of inventory sales.

Established Community Backer ***

Re: Correct Average Cost

Please note that this is only a Notational field: "Correct the cost in the Inventory Edit item, we know how to do this"

 

That doesn't affect Average. That is Notational, as data entry Jump Start. If I buy something at various costs, I can leave that as $0, or note my most likely cost or a quoted cost to document it.

 

What matters is this part, what you did and how you did it and when you did it: "When we setup our inventory we have a few items that were entered at a very wrong cost"

 

When you first started using QB, you set up Items. The Cost here is meaningless, because you are then going to use your most recent Physical Inventory to make one Adjust Inventory worksheet, entering Quantity and Cost on Hand, from that Physical Inventory.

 

Now, if instead, you used New Item, put in a Cost, and also entered On Hand Beginning Balance here, you made up Phony data. You told that system, "Hey, I just found some stuff!" And the system attempts to compute data you did not provide, so it assumes Cost in Edit item x Quantity you just put in the New Item entry, is Basis on hand. And the offset is Opening Balance Equity.

 

If you did it like that, then the Errors are in that Opening Balance Entry adjustment screen that got created each time you Made an Item and also put Beginning Quantity on hand. You need to fix each of these entries. Because you used a function that allowed you to provide an inadequate amount of info.

 

You Make New Accounts, New Names or New Items. Then you use the Functions, not the "field for beginning balances" to populate the actual data.

Established Community Backer ***

Re: Correct Average Cost

When your customer is the US Government and you agree to a price that is based on average cost plus say a material OH rate and a fee, then you get audited and average cost used to buildup price CHANGED on a past date when you had submitted a proposal and/or were billing inflated price to them since now you are showing the Govt customer that you overbilled them for an item, I think that is called "defective pricing" which could cause you to lose your contract, your customer and maybe your company.  

BRC
Established Community Backer ***

Re: Correct Average Cost

@Teri

RE: When your customer is the US Government and you agree to a price that is based on average cost plus say a material OH rate and a fee, then you get audited and average cost used to buildup price CHANGED....

 

When you are this person with such a contract, then you better not mess up your average cost!  If you don't mess it up, then you won't need to fix it.

Not applicable

Re: Correct Average Cost

Thanks Everyone, we've come up with a solution we like.

 

The few items with a messed up cost were located, and then corrected.

Then only after it is fixed, go into the first Invoice with the item on it, remove it, and save the order, then add the item back and re-save the order.

 

The costs are re-calced and the problem solved.

 

Ta-Daaaa, just like magic.

 

And no, the client is not the US Government, so there is no long term GAAP paradox.  :)

 

Thanks Again to everybody who answered.

Established Community Backer ***

Re: Correct Average Cost

"And no, the client is not the US Government, so there is no long term GAAP paradox"

 

Governments are subject to GASB.

 

Teri's concern about Pricing, doesn't affect the issue of fixing Costs.

Established Community Backer ***

Re: Correct Average Cost

Govt Contractors (including small businesses) who sell products or services to Govt agencies like (DOD, NASA, Pentagon, etc). are always subject to GAAP and FAR (Federal Acquisition Regulation).

 

Their customers (the Govt agencies) are subject to GASB.

 

Whether Cost impacts Price depends on the contract type:

FFP = Firm Fixed Price per contract

CPFF = Cost Plus Fixed Fee = Price

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