Cost Override Variance Accounting Examples

• Using the Cost Override Variance GL Account will help reduce discrepancies between the Evaluation and the Inventory Control account in the GL.

1. Scenario 1: Cost is overridden on an Invoice Detail Line:
   • The selling price of the product is $170.00
   • The average cost of the product is $100.00.
   • The product is sold with a cost override of $90.00.

   Scenario 1: Impact on General Ledger	Debit	Credit
   Receive 1 unit @ 100.00:
   Inventory Control GL	100.00
   Receipts Accrual GL		100.00
   Inventory Evaluation (IC81) = 100.00 and
   Inventory Control in GL = 100.00;
   Evaluation and GL are in balance.
   Sell 1 unit for $170.00 but override the cost to be $90.00
   No Cost Override Variance Account is assigned:
   Accounts Receivable	170.00
   Product Sales GL		170.00
   Cost of Sales GL (uses override cost)	90.00
   Inventory Control GL (uses override cost)		90.00
   Evaluation is 0, but the Inventory Control in GL = $10.00
   Evaluation and GL are out of balance.
   If we enter a Cost Override Variance GL account in CC00/Invoicing
   the following GL entries for Cost are generated:
   Inventory Control GL (uses average cost)		100.00
   Cost of Sales (uses override cost)	90.00
   Cost Override Variance GL (DR/CR for the difference)	10.00
   Evaluation is 0 and Inventory Control in GL is 0;
   Evaluation and GL are in balance.

2. Scenario 2: Stock is put back into inventory via Credit Note, but cost on Credit Note is different than current average cost:

   In this scenario, stock is put back into inventory because a customer returned it. Cost on the Credit Note may be different than the current average cost if the cost is manually overridden on the Credit Note detail line or it is picked up as an override from Invoice History when an auto credit is processed.

   • A costing discrepancy arises because the quantity on hand (QOH) is increased for the return but Average cost is NOT re-averaged.

   • This discrepancy is resolved when you enter a Cost Variance Override GL Account in CC00/Invoicing:

   Scenario 2: Impact on General Ledger	Debit	Credit
   Receive 2 units @ 100.00:
   Inventory Control GL	200.00
   Receipts Accrual GL		200.00
   Inventory Evaluation (IC81) = 200.00 and
   Inventory Control in GL = 200.00;
   Evaluation and GL are in balance.
   Sell 1 unit for $170.00:
   Accounts Receivable GL	170.00
   Product Sales GL		170.00
   Cost of Sale	100.00
   Inventory		100.00
   Inventory Evaluation (IC81) = 100.00 and
   Inventory Control in GL = 100.00;
   Evaluation and GL are in balance.
   Receive 1 unit for $150.00:
   Inventory Control GL	150.00
   Receipts Accrual GL		150.00
   Average cost now = 125.00 (1 @ 100 + 1 @ 150 = 2 @ 125)
   Inventory Evaluation (IC81) = 250.00 and
   Inventory Control in GL = 250.00
   Evaluation and GL are still in balance
   The unit that was sold at cost of 100.00 is returned via Autocredit
   (autocredit picks up the cost of the original sale from Invoice History
   as a Cost Override):
   Accounts Receivable		170.00
   Sales	170.00
   Inventory	100.00
   Cost of Sale		100.00
   Inventory Control GL = 350.00;
   QOH is increased by 1 unit, but cost is not re-averaged.
   Now, Evaluation is 375.00 (3 units at 125.00)
   There is a discrepancy of 25.00
   Evaluation and GL are out of balance.
   If we enter a Cost Override Variance GL account in CC00/Invoicing
   the following GL entries for Cost are generated:
   Inventory Control GL (uses average cost)	125.00
   Cost of Sale (uses override cost)		100.00
   Cost Override Variance GL		25.00
   Evaluation is 375.00 (3 units at 125.00)
   Inventory Control in GL = 375.00
   Evaluation and GL are in balance.