I was brought the question of why a dramatic change in the standard cost of an item that is in inventory did not create a journal entry to reflect the change in value. I noticed that the valuation methods on this particular product are setup as follows: under “Standard Valuations” section, Valuation = Cumulative AUC, Alt Default = Standard Cost, Receipt Value = Order Cost and Alt Default = Standard Cost.
The product in question was a newly created product and was placed into inventory via Misc receipt (for the first and only time) where it still remains. At the time the standard cost was incorrectly set to $22093 per EA instead of $22.93. After the misc receipt was posted, the person realized the issue with standard cost and went into change it to $22.93. No journal entry was created to adjust the value of the existing inventory. I have a theory as to WHY it didn’t create a journal entry but I would rather know for sure. If someone could please either validate or correct my theory, I would really appreciate it!
My Theory: Since it was the first time this product went into inventory, the alternative default of Standard Cost was used to generate the value of the product which was at $22093. Since there was a receipt (even though it was a misc receipt) and the valuation method is set to Average Unit Cost, the inventory is being valued at the same value of the product from the misc receipt. So a change to the standard cost would not post a JE to correct the value of the inventory because the value of the inventory is based off of the average receipt cost (since in this case there is only one), so the inventory will be valued at $22093. Does this make sense?
Also, as you can see the value is egregiously wrong. Because I am using AUC (and if my above statement is correct), will the value of this inventory be wrong for all time? How are you supposed to fix an issue like this when using AUC?
