1. Microsoft Dynamics® NAV 2009
Inventory Costing

2. Introduction Instructor’s name Training schedule
Organizational moments
Facilities
Restrooms

3. Course Description Audience Training Goal:
Microsoft Dynamics Certified Partners’ employees selling, implementing, and supporting Microsoft Dynamics NAV 2009
Training Goal:
Learn the basics and advanced features of Inventory Costing

4. Course Objectives
To provide an overview on inventory valuation and accounting principles
To instruct on managing, monitoring, analyzing, and tracing inventory costs in Microsoft Dynamics NAV 2009

5. Course Outline
Inventory Costing Overview
Inventory Costing Principles
Inventory Costing Functionality
Inventory Valuation Functionality
Inventory Costing Setup

6. What are your objectives and expectations?
Course Objectives
What are your objectives and expectations?

7. Session 1 Outline Inventory costs Inventory accounting principles
Bases
Cost object
Cost flow assumptions
Inventory posting flow
Inventory periods
Unit cost calculation
Costing methods
FIFO, LIFO, Standard, Specific
Average
Inventory transfers and returns
Inventory adjustment functionality

8. Microsoft Dynamics NAV 2009
Inventory Costing Overview

9. Base Equation Ending Inventory Beginning Inventory Net Purchases
Cost of Goods Sold

10. Costs Included in the Balance Sheet and Income Statement
Cost Classification
Costs Included in the Balance Sheet and Income Statement
Capitalized
Non-capitalized
Inventoriable
Non-inventoriable

11. Perpetual Inventory Method
Perpetual inventory method – a method that records and calculates the cost of withdrawals at the time the items are taken from inventory
Ending Inventory (known)
Beginning Inventory (known)
Net Purchases (recorded)
Cost of Goods Sold (solved for)

12. Bases of Inventory Valuation
Acquisition cost – historical cost of items
Standard cost – an estimate of what inventory items should cost
Net realizable cost – amount that a company could realize as a willing seller with a willing buyer
Replacement cost – amount the company would have to pay to acquire the item
Lower-of-cost-or-market-basis – lesser of acquisition cost and market value

13. Cost Object and Cost Assignment
-anything for which a separate measurement of costs is desired
Tracing
Allocation
Direct Costs
Indirect Costs

14. Acquisition Cost Formula
Purchase Cost (- Discounts)
Additional Acquisition Costs
Indirect Costs

15. Accounting for Inventory?
Net Purchases
Cost of Goods Sold

16. First-In, First-Out Cost Flow Assumptions
Beginning Inventory Net Purchases
Goods Available for Sale
Ending Inventory Cost of Goods Sold

17. Last-In, First-Out Cost Flow Assumptions
Beginning Inventory Net Purchases
Goods Available for Sale
Ending Inventory Cost of Goods Sold

18. Weighted Average Cost Flow Assumptions
Beginning Inventory Net Purchases
Goods Available for Sale
Ending Inventory Cost of Goods Sold

19. Microsoft Dynamics NAV 2009
Inventory Costing Principles

20. Determining the Value of Inventory
Posting
Reconciliation
Value Entries
Item Ledger Entries
General Ledger Entries
Inventory Transaction

21. Accounting for Inventory0D .
Starting Date
Ending Date
Posting Date
Value of Quantity on Hand
Value of Inventory Increases
Value of Inventory Decreases
Inventory Value on Ending Date

22. Inventory Posting Flow
Quantity Posting
-records changes in quantity on inventory
Sales (incl. purchase returns)
Purchases (incl. sales returns)
Distributor
Transfers
Inventory Adjustments
Manufacturer
Consumption
Output
Item Ledger Entries

23. Inventory Posting Flow
Value Posting
-records changes in inventory value
Direct Costs
Indirect Costs
Rounding
Revaluations
Variances
Value Entries

24. Inventory Posting Flow
Inventory Increase
Inventory Decrease
Inventory
Application Entry
Item Ledger Entry
Item Ledger Entry
Value Entry
Value Entry
General Ledger
G/L Entry
G/L Entry

25. Inventory Periods Accounting Period Accounting Period
Close
Outbound entries closed Costs adjusted & posted to G/L
Accounting Period
Inventory Period
Reopen
Late postings,
cost adjustments,
additional costs, and so on.

26. Microsoft Dynamics NAV 2009
Inventory Costing Functionality

27. Unit Cost Unit Cost Calculation Valuation Base Acquisition Cost
Standard Cost
FIFO, LIFO, Specific Average
Costing Method
Standard
Last Direct Cost (+ Indirect Cost % + Overhead Rate) Average Cost
Standard Cost
Field
Unit Cost

28. Unit Cost Posting Inbound transaction Value entries
Purchased quantity
Related item charge
Value entries
Entry with direct unit cost
Entry with item charge as indirect cost
Item ledger entries
Entry with unit cost + item charge as Cost Amount (Actual)

29. Linking Inventory Increases and Decreases
User
Increase
Decrease
Fixed Application
Inventory
Link
Application Method
Costing Method

30. Costing Methods
Costing method – a combination of application methods and cost flow assumptions +

31. Costing Methods First-In, First-Out Posting Date Cost Amount (Actual)
Entry No.
1/1/2010 10 1 20 2 30 3
1/2/2010
-10 4
1/3/2010
-20 5
1/4/2010
-30 6

32. Costing Methods Last-In, First-Out Posting Date Cost Amount (Actual)
Entry No.
1/1/2010 10 1 20 2 30 3
1/2/2010
-30 4
1/3/2010
-20 5
1/4/2010
-10 6

33. Costing Methods Average Posting Date Cost Amount (Actual) Entry No.
1/1/2010 10 1 20 2 30 3
1/2/2010
-20 4
1/3/2010 5
1/4/2010 6

34. * - same principle as fixed application
Costing Methods
Specific*
Posting Date
Cost Amount (Actual)
Entry No.
1/1/2010 10 1 20 2 30 3
1/2/2010
-20 4
1/3/2010
-10 5
1/4/2010
-30 6 1 2 3 2 1 3
* - same principle as fixed application

35. Costing Methods Standard Posting Date Cost Amount (Actual) Entry No.
1/1/2010 15 1 2 3
1/2/2010
-15 4
1/3/2010 5
1/4/2010 6

36. Application of Entries
Application algorithm:
Is there a fixed application?
Are there Item Tracking Lines?
What is the costing method?
Item Application Entry

37. Fixed Application Fixed Application Posting Date Cost Amount (Actual)
Entry No.
Applies-to Entry No.
1/1/2010 10 1 20 2 30 3
1/2/2010
-20 4
1/3/2010
-10 5
1/4/2010
-30 6

38. Average Cost Calculation
Average Cost Period
Average Cost Calculation Type
Day
Week
Month
Accounting period
For each item
For each item, location, and variant
Valuation Date
Average Cost

39. Average Cost Calculation
Calculation formula:
Item Cost
Sum of Receipts
Cost of Inbound Transactions
Total Inventory Qty.
Average Cost Period

40. Non-inventoriable Costs
Item Charge

41. The Cost Shares Breakdown Report
Print Cost Share option:
Sale
Inventory
WIP Inventory
Cost elements:
Purchase and material
Capacity and capacity overhead
Manufacturing overhead
Subcontracted cost
Other

42. Location A Location B Inventory Transfers Transfer Inventory Increase
Inventory Decrease
Location A
Inbound Entries
Outbound Entries
Location B
Inbound Entries
Outbound Entries
Application
Application
valued according to costing method

43. Location A Inventory Returns Exact Cost Reversal
Cancels the effect of postings made to COGS accounts
Restores the items in inventory at the correct cost
Purchase Inbound Return
Outbound Return Sale
Location A
Inbound Entries
Outbound Entries
Fixed Application

44. Inventory Adjustment
Item cost may need to be adjusted if:
The item is valued according to FIFO or LIFO costing methods
Unit cost is changed due to additional direct cost
The item is valued at average cost
Sales occur before purchase

45. Ways of adjusting inventory costs:
Inventory Adjustment
Ways of adjusting inventory costs:
Adjust Cost – Item Entries batch job
For each item
For each item category
For all items
Automatic adjustment
Daily
Weekly
Monthly
Yearly
Always (when posting occurs)
better performance

46. 10/3 = 3.(3) Rounding Average costing method Cumulative rounding entry
Separate rounding entry
Other costing methods

47. Session 1 Summary Costs are classified as:
Capitalized, non-capitalized
Inventoriable, non-inventoriable
Direct costs are traced to the cost object, indirect costs – allocated to the cost object
Supported cost flow assumptions are FIFO, LIFO, Weighted Average
Inventory posting is comprised of quantity and value posting
Posting flow includes creation of the following entries:
Value entries
Item ledger entries
General ledger entries
Inventory periods help with posting of inventory transactions

48. Session 1 Summary
Unit cost on purchase line is retrieved based on the item’s costing method
Unit cost on sales line depends on how the link is established between the inventory increase and decrease
Supported costing methods are FIFO, LIFO, Average, Specific, Standard
Entry application can be of two types:
Based on the costing method
Fixed application
Average cost depends on the valuation date
Non-inventoriable costs can be recorded as item charges

49. Session 1 Summary
Inventory transfers are valued using the transfer application
Inventory returns are valued using the fixed application
Inventory costs need to be adjusted automatically or using the adjustment batch job
Rounding is facilitated by creating cumulative or standalone rounding value entries

50. Session 1 Summary
Questions?

51. Session 1 Summary
Test Your Knowledge!

52. Microsoft Dynamics NAV 2009
Inventory Costing

53. Posting inventory costs to the General Ledger
Session 2 Outline
Inventory valuation
Posting inventory costs to the General Ledger
Post Inventory Cost to G/L batch job
Posting expected inventory value
Tracing G/L entries
Inventory revaluation
Physical inventory
Inventory costing setup

54. Microsoft Dynamics NAV 2009
Inventory Valuation Functionality

55. Inventory Valuation Inventory Valuation Value Entries Direct Cost
Indirect Cost
Variance
Revaluation
Rounding

56. Inventory Valuation Report
Starting Date .
Ending Date
Posting Date
Value of Quantity on Hand
Value of Inventory Increases
Value of Inventory Decreases
Expected Costs
Inventory Value on Ending Date

57. Posting Inventory Costs to G/L
Balance Sheet
Income Statement
Account Name
Inventory
Account Name
Direct Cost Applied
Overhead Applied
Purchase Variance
COGS
Purchase Ledger Entries
Credit
Debit
Credit
Sale Ledger Entries
Debit

58. The Post Inventory Cost to G/L Batch Job
Processing Algorithm:
Determine the posting method.
Determine whether expected cost posting is enabled.
Calculate the amounts to be posted: Amount to be posted = Cost Amount (Actual) - Cost Posted to G/L
Create general ledger entries for the calculated amounts.
Update the Cost Posted to G/L field: Cost Posted to G/L = Cost Amount (Actual)
Update the Cost is Posted to G/L field on the item card.
Display the report.

59. Posting Expected Inventory Value
Amount to be posted
Expected Cost Posted to G/L
Cost Amount (Expected)
Post Inventory Cost to G/L
batch job
Post Inventory Cost to G/L
batch job 1 2
Amount to be posted
Interim G/L Accounts
Regular G/L Accounts

60. Tracing G/L Entries
General ledger entries can be traced to underlying value and item ledger entries because of the following features:
Inventory – G/L Reconciliation tool
Displays reconciliation differences between the inventory ledger and G/L
Allows to drill-down to specific entries
Exposes the reasons for reconciliation differences
Links between value and general ledger entries
One-to-one relation
One-to-many relation

61. Inventory Revaluation
Revaluable quantity = Sum of quantities on invoiced item ledger entries for all inventory increases and decreases with posting dates equal or earlier than the revaluation date
For standard-valued items, expected costs can also be revalued (interim inventory accounts in G/L will be affected)
Ways of performing revaluation in the revaluation journal:
Entering a line manually and applying it to the item ledger entry in question
Running the Calculate Inventory Value batch job

62. Physical Inventory Count
Actual Quantity on Hand
Calculated Quantity on Hand
Adjust Cost – Item Entries batch job
Adjustments
Physical Inventory Count

63. Microsoft Dynamics NAV 2009
Inventory Costing Setup

64. Inventory Costing Setup
The setup of Inventory Costing consists of:
Setup of inventory periods
General setup
Automatic Cost Posting
Expected Cost Posting to G/L
Average Cost Calculation Type
Average Cost Period
Individual item setup
Costing Method

65. Session 2 Summary Inventory is valued based on value entries.
Inventory cost is posted to the income statement and balance sheet accounts in the General Ledger based on the types of value and item ledger entries.
The Post Inventory Cost to G/L batch job can post per entry or per posting group.
Expected inventory value can be posted to interim inventory accounts.
General ledger entries can be traced down to underlying value and item ledger entries.

66. Session 2 Summary
Revaluation is based on actual cost (or expected cost for standard-valued items).
The Calculate Inventory Value batch job allows to perform inventory revaluation to a wider extent.
Physical inventory counting helps resolve differences between the actual and calculated quantity of items on hand.
Inventory costing setup reflects the way the company decides to control and account for its inventory value.

67. Session 2 Summary
Questions?

68. Session 2 Summary
Test Your Knowledge!

69. The course highlighted the following points:
Course Summary
The course highlighted the following points:
Classification of inventory costs, definition of cost object
Bases of inventory valuation, cost flow assumptions
Costing methods and application of entries
Inventory posting flow, unit cost and average cost calculation
Cost flow of inventory transfers and returns
Cost adjustment and rounding
Reconciliation between inventory ledger and G/L
Inventory revaluation
Setup of the Inventory Costing functionality