Cost variances
What are cost variances?
Rounding or cost of goods sold wash-ups are referred to as cost variances.
The system computes product cost variances in the following ways:
- Rounding differences in cost calculations
- Products sold before import costings are posted
- Non-diminishing products sold into negative stock qty
Rounding differences in cost calculations
The number of precision or decimal places of product unit costs and selling prices is set to 3 by default.
Because of this, the resulting product value can be slightly off due to the rounding differences.
An example of products sold before finalising the landed cost calculations:
- An invoice is showing 100% GM on products sold before posting the landed cost calculation (or PO receipt)
In this case, the system's handling of the accounting component will be:
- For this invoice, the cost of goods sold is $0. Note, a $0 valued cost of goods sold will not be synced to Xero.
- Once the landed cost has been posted, the system will create a cost variance journal since it recognises that the product was sold into negative inventory. The journal will be coded to the Cost Variance Calculations GL mapping (see below) on Xero. Typically, this GL is part of the cost of goods sold reporting group. Note, if the Cost Variance GL mapping is not entered, then the cost variance journal will not be sent to Xero.
- The zero cost sold is re-balanced by the cost variance journal
Non-diminishing products sold into negative stock qty
By default, the cost of goods sold for non-diminishing products sends to Xero. To turn off this behavior, go to Xero integration settings page.
In even of a non-diminishing product is sold below zero stock qty, and with an overriding non-dim cost that has set on the sales order, the system will attempt to calculate the cost variance for this transaction.
For example:
- A sales order has a non-diminishing product with a qty ordered that is more than the stock on hand qty of the product
- The total weighted average cost for the non-diminishing product is: $10
- There is an overriding non-dim cost of $1 set on the sales order
- When the sales order is invoiced:
- The stock on hand of this product will be in negative (below zero)
- A cost variance of unit $9 (per qty) will be calculated to balance the overriding non-dim cost back to the total weighted average cost of the product
