Cost variance transaction case study 3

A transaction is written to the MATRECTRANS table or the INVOICETRANS table, or both, for the entire variance. The value of UPDATEINVENTORY in MAXVARS is 0 and the average cost is not updated.

A change in the exchange rate causes TRANSTYPE = CURVAR to be written to the INVOICETRANS table for that portion of the total variance.

A change in the cost in the foreign currency causes TRANSTYPE = INVCEVAR to be written to the INVOICETRANS table for that portion of the total variance.

Both the preceding overview and the following example apply to both capitalized and non-capitalized items.

In this example, you approve an invoice for 20 bearings at CAD3.30 each. The base currency is US dollars, and the exchange rate is currently CAD5.00 per USD1.00. At the point of receipt, the item price is only CAD3.00, and the exchange rate is CAD6.00 per USD1.00.

At receipt, the bearings are CAD3.00= USD0.50 each.

At invoice approval, the bearings are CAD3.30 = USD0.66 each.

Currency variance transaction

The cost on receipt is CAD3.00= USD0.50. If the cost at invoice is CAD3.00, as opposed to CAD3.30, the cost per bearing at invoice is CAD3.00= USD0.60. The CURVAR transaction is written to the INVOICETRANS table.

Table 1. Source of GL account for currency variance transaction
GL account source Debit Credit GL account source
Currency variance account ($0.60-$0.50) x 20 = $2.00 ($0.60-$0.50) x 20 = $2.00 Inventory control account

Even if the item is a capitalized item, the credit account is the inventory control account, not the capital GL account.

Invoice cost variance transaction

For this transaction, you control the exchange rate variable. If the exchange rate at receipt is the same as the invoice exchange rate, the cost per bearing at receipt is CAD3.00= USD0.60 (not USD0.50). The cost at invoice was CAD3.30= USD0.66. The INVCEVAR transaction is written to INVOICETRANS.

Variance accounts track cost variances by storeroom location, not by item.

Table 2. Source of GL account for invoice cost variance transaction
GL account source Debit Credit GL account source
Invoice Cost Variance account of Storeroom ($0.66-$0.60) x 20 = $1.20 ($0.66-$0.60) x 20 = $1.20 Inventory Control account

The $3.20 variance for the 20 items on the invoice is made of a $2.00 currency variance and a $1.20 cost variance.

Even if the item is capitalized, the credit account is the inventory control account, not the capital GL account.