Average Costing Negative Inventory

SOLVED

We are currently exploring moving some of our smaller, order-in products from FIFO to Average costing. I understand how the valuation works on both sides, but we are still working through some company process issues where sometimes a S/O will get finalized with inventory that has not yet been received. With FIFO, it creates a negative tier that sits until we receive it and run a negative tier adjustment... but how would that work with average costing?

From what I know, average costing valuation is based on current inventory... so if there is no current inventory and you sell something you haven't received, how does that COGS value get assigned and is there any visibility or way to fix it if it's off. 

Any thoughts or help is appreciated. Thanks!

  • +1
    verified answer

    With Average costing, going negative with inventory is handled very badly.  The calculation / algorithm often ends up with negative costs being posted.  Set up a test company and go through all the applicable transactions to see what happens.

    If going negative is a problem for you, Standard valuation is much more reliable (technically).  Cost changes are done with a utility (so extra maintenance activities are required), but the cost postings are based on the Standard value no matter what you have on hand.