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Oracle Apps Tutorial: How to Adjust Average Cost with

Invoice Price Variances (IPV)

On March 11, 2011, in Oracle Cost Management  , Oracle E-Business Suite , Oracle Inventory ,

Oracle Payables , by ssuthin

If you want to get your inventory cost, and ultimately your cost of goods, to reflect the actualcost you paid for your items, then you will want to interface the Invoice Price Variance (IPV)from Oracle Payables to Oracle Inventory/Cost anagement! "he ability to perform this updateof inventory cost is only for inventory organi#ations using the average cost costing method! "ounderstand this process, let$s loo% at the flow of cost from PO receipt to "ransfer of InvoiceVariances! &ere$s an overview of each step'

! Create and approve a PO

! *eceive the item

+! nter and match an -P invoice (release any holds if necessary)

.! enerate accounting for the -P invoice

0! "ransfer invoice variances to Inventory

Oracle IPV transfer flow from Payables to Inventory

1tep in the process (PO receipt) sets the initial average cost! "his cost will be used on allissues or shipments out of inventory! *emember in average costing, we receive at PO price andissue out at average!

Once steps + (enter and match an -P invoice) and . (generate accounting) are complete, we areready to run the "ransfer Invoice Variance to Inventory program! 2ou can run the program fromCost anagement for one inventory organi#ation at a time! "his program will sum the

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difference between the invoice price and the PO price for each item/organi#ation combinationand then create an average cost update transaction! "his transaction will have an amount but nota 3uantity! "his amount is then applied to the remaining inventory on4hand! 1o let$s loo% at acouple of e5amples and how your average cost will change!

5ample '

• PO Price 67

• *eceipt 8uantity 77

• Invoice Price 6

• On4&and 77

• 9eginning -verage Cost 67

• nding -verage Cost 6

In this e5ample, we will apply the IPV of 6 to all 77 units in inventory! 1o the average cost before the IPV transfer is 67 and the average cost after the IPV transfer is 6! "his wouldcorrectly value our inventory at actual cost!

5ample '

• PO Price 67

• *eceipt 8uantity 77

• Invoice Price 6

• On4&and 7 (sold :7 units)

• 9eginning -verage Cost 67

• nding -verage Cost 6+7 ((677/7) ; 67 < 6+7

In this e5ample, we will apply the IPV of 6 to remaining 7 units in inventory! 1o the averagecost before the IPV transfer is 67 and the average cost after the IPV transfer is 6+7! "his wouldresult in lower margins the ne5t time we sell and ship this item!

5ample +'

• PO Price 67

• *eceipt 8uantity 77

• Invoice Price 6

• On4&and 7 (sold 77 units)

• 9eginning -verage Cost 67

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• nding -verage Cost 67

In this e5ample, we wouldn$t apply the IPV of 6 because the on4hand 3uantity is #ero! 1o theaverage cost before the IPV transfer is 67 and the average cost after the IPV transfer would also be 67!