In the past, Dynamics GP calculated cost variances for FIFO/LIFO perpetual valuation method items during purchase order processing, sales order processing, or inventory control. These variances were not always posted to the general ledger. Users were frequently reminded of the significance of reviewing the Cost Variance Journal. However, this changed with the release of Dynamics GP 9.0.
While articles about cost variances exist, many seem outdated or inaccurate, especially regarding changes introduced in version 9.0. After a discussion with Microsoft’s Pam Peterson, I’ve decided to provide a clear explanation.
The purchase order processing training manual describes three types of cost variances for FIFO/LIFO perpetual items. Let’s break them down:
Scenario #1
- An item has a quantity of 5 on hand with a cost of $1 each.
- A sale of 15 units occurs, resulting in a negative inventory. The sale is recorded at the current cost of $1 each.
- The IV10200 table (Inventory Purchase Receipts) creates an override layer for the negative quantity (10 in this case).
- A purchase receipt of 20 units is entered with an invoice cost of $1.25 each.
- This creates a $2.50 variance ($.25 difference x 10 units) impacting COGS and Inventory.
- This variance appears on the Cost Variance Journal when the receipt is posted.
- Here’s the key difference: in versions prior to GP 9.0, this variance did not automatically post to the general ledger. From GP 9.0 onward, the variance is automatically recorded in the general ledger.
Importantly, automatic adjustment only happens if the transaction causing the override was recorded in GP 9.0 or later. This ensures accurate outflow recording in the IV10201 table (Inventory Purchase Receipts Detail). Upgrading from pre-9.0 versions results in the system selecting the most recent receipt for an item and creating a dummy outflow. Therefore, testing this with a negative Fabrikam item might not trigger the automatic adjustment. To fully test, perform the entire process with a new item instead of using existing negative inventory data.
Scenario #2
- An item has 10 units on hand.
- A purchase receipt for 10 units is entered at $1 each.
- The corresponding invoice is entered, but at a cost of $1.25 each.
- This leads to a $2.50 variance ($.25 difference x 10 units) between the initially posted cost and the final invoice cost.
- The variance is handled during invoice posting and recorded either in the inventory account or the purchase price variance account. This depends on whether the “revalue” option is selected in Item Purchasing Options.
- The Purchasing Invoice Cost Variance Journal details the variance and confirms that manual COGS/Inventory adjustments are unnecessary.
Scenario #3
- An item has 10 units on hand.
- A purchase receipt for 10 units at $1 each is entered.
- A sale of 15 units at $3 each is made.
- The corresponding invoice for the purchase is entered at $1.25 each.
- This creates a $1.25 variance ($.25 difference x 5 units) between the initial and final purchase costs.
- Similar to scenario 2, the variance is managed during invoice posting and recorded in cost of goods sold, inventory, and potentially purchase price variance (if “revalue” is not selected).
- The Purchasing Invoice Cost Variance Journal provides variance details and confirms no manual adjustment is needed for COGS/Inventory.
Hopefully, this clarifies cost variances and their impact on the general ledger in Dynamics GP.
For detailed information about the variance’s general ledger entry, refer to TK #2448193. For additional information about cost variances and perpetual valuation methods, including average perpetual, see this [article](https://mbs.microsoft.com/customersource/documentation/howtodocuments/msd_gpinfoenhancementscalcavg.htm?printpage=false&sid=4aqtk41xy2rnx5lvgi3iafhm&stext=cost variance journal dynamics gp).
Christina Phillips is a Microsoft Certified Trainer and Dynamics GP Certified Professional. She is a supervising consultant with BKD Technologies, providing training, support, and project management services to new and existing Microsoft Dynamics customers. This blog represents her views only, not those of her employer.