I've attached some pages from an accounting textbook, let's see if they get
through...
Adrian Crum wrote:
I've found it's best to ask an accountant these types of questions. In
this example, an accountant might expect average cost to be calculated a
certain way, and not worry so much about "penny accuracy."
-Adrian
Daniel Kunkel wrote:
Hi
It's so wonderful to see an integrated accounting system for OFBiz.
I've done some thinking about the algorithm used to calculate the
average cost of an inventory item, and thought I'd share it again.
Rather than trying to store an "average cost" for an item, I believe we
would be much better off storing the "total investment" for each item.
Most of the time, it won't make any difference, however I have seen that
directly storing the average cost leads to all sorts of floating point
resolution and residual adjustment issues, and complications when
purchasing inventory at a varying price. Most notably that the total
investments purchasing an item sometimes won't exactly equal the total
cost of goods expensed after it is all expended.
From http://lists.ofbiz.org/pipermail/dev/2006-March/010207.html:
For example, if you bought a million pieces for $3,889,107,143, and sold
them out of inventory one at a time for $3.89 without tracking/updating
the residual average cost.. eventually you'd have to account for
difference of more than $800,000!
The solution:
Keep a running "total investment" for each item. At the point that you
utilize an item, calculate and subtract the cost of those items
rounded to a penny for example. Other currencies will round to the
degree necessary for their currency.
The effect of doing this will be that the cost of goods will oscillate
up and down, in the above example between 3.88, and 3.89
in such a way that when you've sold your millionth item, the residual
investment remaining is exactly 0.
Thanks
Daniel
