Weighted average inventory accounting in Dynamics AX

I’ve already written a couple of posts about Weighted average inventory costing, but because they say good things come in threes, here’s the third. I discussed the difference between weighted average and date weighted average here, and pointed out a common scenario which shows you a financial cost when you have zero stock on hand here, but I’ve just spent a couple of days investigating an issue where we had a negative financial cost with zero stock on hand, and it wasn’t the simplistic example I posted above (which was just looking at the on hand at the wrong level of detail by storage dimension).

This has lead me to formulate some do’s and don’ts for weighted average costing (and it’s also finally weaned me of my previous preference for date weighted over weighted average).

I’ve been working in AX 2009 – however, for safety I’d assume that these guidelines apply equally to AX 2012.

Don’t have financial dates before physical dates. Here we are principally talking about the posting date you apply to an update > end of a production order (or post a purchase order invoice). The production order report as finish (or purchase order product receipt) is the physical receipt. Do have the financial date on or after the physical date on all your inventory transactions.

Don’t close inventory more than one month late. For instance, close January in February – not in March (or later). Do update > end production orders promptly, and do close inventory within a few days of the actual month end.

Don’t ignore error messages if you have to cancel a close. Unfortunately, inventory closing almost always generates a long Infolog warning you about items where the costs can be fully settled. These will typically be purchased items where you have posted the purchase order product receipt, but haven’t posted the vendor invoice yet; or production orders where you’ve posted the report as finished but haven’t update > ended the production order. So this kind of conditions us to ignore the Infolog from a close. But you don’t normally get an Infolog when you cancel a close. While I was working through my inventory accounting issue I cancelled a close and saw an Error Infolog like this:

Cancel close 31 Dec (ICV000092)
IAD000853
Cancellation
Date closed: 31/12/2015, Voucher ICV000092
Item ****
Could not delete a weighted average inventory closing transaction on item **** on date 9/12/2015.
Could not delete a weighted average inventory closing transaction on item **** on date 9/12/2015.
Item ********
Could not delete a weighted average inventory closing transaction on item ******** on date 10/12/2015.
Could not delete a weighted average inventory closing transaction on item ******** on date 10/12/2015.

OK. I confess. I didn’t notice this the first time I cancelled the close (it was actually on the third time through that I finally took notice of this error).

And finally: Do check the settlements and ledger vouchers posted by inventory closing and revaluation. The simplest way to check the settlements is to go to Inventory management > Periodic > Closing and adjustment > Settlements, and sort by the Adjustment amount (by clicking on the ‘Adjustment’ column heading a couple of times):


Check the ledger voucher by clicking Ledger > Voucher. (It might help to export the voucher to Excel and setup a simple pivot table by Ledger account and Amount if you have a lot of postings in your voucher because of financial dimensions).

Don’t ignore large adjustments. Obviously I have to leave what is ‘large’ up to your judgement, but I’d certainly be asking for help if I saw any numbers that I couldn’t pronounce, like this:


To sum up – if you want to use weighted average costing, keep your postings disciplined; and close inventory every month; and stay vigilant.

If you aren’t prepared to do that, use FIFO (or FIFO + Fixed receipt).


Resource (Work Centre) Efficiency percentage in Dynamics AX

There’s a field on the Resource (Work centre) in Dynamics AX called the ‘Efficiency percentage’.


I must admit I’ve never paid it too much mind. It’s a useful little setting because it’s easy to adjust (because it’s held on the resource and not on the route operation).

Usually in a workshop I just make a throw-away comment like “Set this to say 95% so that you get an achievable schedule”. But this time someone was awake in the workshop and we started to discuss this concept in detail.

Here’s how it works. Let say that my machine in the example above has a plate on the side that says “this machine makes 15 widgets per hour” – and let’s say, for the sake of argument that it runs 24 hours per day. Now my machine only makes 15 widgets per hour when it is running – but I can expect the odd problem, so I’ll set my old friend Efficiency percentage to 95%. Therefore, my setup looks a like this:


Now 15 x 24 = 360. Let’s create and schedule a production order for 360:

My production order is scheduled to start at midnight and finish at 1:15am the following day:


And the capacity reservations are:


So because of my 95% Efficiency percentage I’m only getting 22.80 hours of useful work in my 24-hour day. Another way of looking at this is although my machine is theoretically capable of producing 360 widgets in a 24-hour day, actually in a normal working 24-hour period I’m only expecting to produce 342 (360 x 95%). I’ll just check my maths by changing the production order and re-scheduling it:


Now that’s all perfectly sensible, but the debate was started by the question: “So what’s the standard cost of 1 widget?”. Our machine is powered by huge amounts of unobtainium, and costs $150.00 per hour to run. Is the standard cost of 1 widget $10.00 or $10.53 (24 x 150 / 342)?

I’m not sure I know the answer – it’s a bit of a value judgement. Interestingly, if you look at the way the production order cost is calculated (I’ve estimated my production order) you can see that the system only costs the calculated working time of the machine, and not the total elapsed time that is scheduled:


So if you may want to increase the hourly rate of a machine with an Efficiency percentage of less than 100% according to the additional [non-working] time that’s scheduled onto a production order. Unfortunately, if you do that you lose the advantage of the Efficiency percentage setting percentage which is that it can be adjusted simply and quickly – because if you change it, you’ll have to go and adjust your machine rates.

The colour field on production orders in Dynamics AX

For as long as I can remember (which is AX 3) there’s been a ‘Colour’ field on the production order.

AX 2009:


Note. In AX 2009 you’ll only see the Colour field if you have the Production III module licenced.

AX 2012:


AX 7 (or whatever it’s called this week):


The only place that I can see this being used (in standard Dynamics AX) is the Gantt chart. You have to have job scheduled your production orders, and in this instance I’m coming from a production order with these capacity reservations:


The Gantt chart shows me:


On the Gantt chart Setup > Colours Production tab I have the option of ‘Use production colour’:


That gives me:


So, this isn’t so useful if I only have one a view of one production order so let’s mosey on over to Organisation administration > Common > Resources > Gantt charts:


The first thing we need to do it create a Gantt definition, and then as you can see implied by the Resource and Resource group tabs we define the work centres that will be shown on the Gantt chart. Let’s set one up for a week:


And on the resources tab I’ll define the work centres I want to see:


Click on the Gantt button and you get a pop-up asking you to define your start date:


And OK gives you the Gantt chart:


Now Use the Setup > Colours to use the production order setup – and (providing that you set the colour on the production order) you can get something like this:


Which begs the question: why didn’t those nice folk at Microsoft give us some way of defaulting the colour on to the Production order from the production order item?

Actually when we did do the customisation to default the colour on to the production order we decided not to add the default colour from the item, but from the Property. That we could colour code both our production orders and our working times. See this post for details on using properties.