The concept of periodic weighted average (periodic WA) rests on the premise that costs for material and time
used in the process to purchase and manufacture parts should be the costs that actually
are accounted for in deliveries to the customer. The calculation principle is:
Ending stock value = Beginning inventory value + Invoiced costs + Processing costs -
Cost of sold goods.
Compared to the inventory valuation methods of standard cost, weighted average, FIFO, and LIFO, the periodic weighted average posts no price differences or cost variances. Periodic WA, in other words, is a method to consider actual costs. The goal for periodic WA is to post actual costs, thus eliminating all purchase price differences and shop order cost variances.
If periodic WA functionality is used, it means that a fixed cost (i.e., the weighted average value of the previous period) in the application is used during the period. At period close, a new weighted average is calculated and applied to all transactions that are created during the period to be closed.
Periodic WA calculation for a period will only consider parts that have been remained as periodic WA during the whole period.
For the inventory part, there is functionality that allows you to limit the percentage with which the cost is to be updated during a periodic WA update. If you have few parts in stock and few inventory transactions you might want to consider using this functionality to reduce the impact on the cost change of high cumulative differences. Any remaining difference (compared to the update given by the periodic WA calculation) is saved for later updates. The periodic WA update is explained in detail below.
When periodic WA is used, postings are handled differently compared to how they are posted when you use the inventory valuation methods of standard cost, weighted average, FIFO and LIFO:
The periodic WA background job is divided into three parts, which are described further below:
In a periodic WA update, all transactions are updated with a correct periodic weighted average, i.e., postings for transactions are re-created using the new cost, and the beginning inventory is re-evaluated.
Note that parts not handled by periodic WA can also be affected (i.e., new cost variances can be created) by the update. This is the case when, for instance, the top part in a structure is not handled by periodic WA, while other parts in the structure are. A new cost variance transaction will then be created for the top part.
Single-level periodic WA is the first step in the multi-level periodic WA process due to the fact that purchased parts are always at the lowest level in a manufacturing structure. For non-manufactured parts, it is the only step performed in order to achieve actual cost.
Prior to the update, the cumulated price difference per part is summarized. When the inventory valuation methods of standard cost, weighted average, FIFO, and LIFO are used, price differences occur when you match supplier invoices against receipts for inventory parts. The cost of the receipt transaction is then compared to the invoiced price, and the difference is considered as a price difference.
During the update, a new periodic weighted average is calculated, beginning
inventory is revalued, and costs on historic transactions for the affected parts are
changed. The calculation of the periodic weighted average per part is
as follows:
New periodic weighted average = ((ABS (Beginning Inventory + Qty of Real Deliveries
Into Stock) * Old Unit Cost) + Sum of Difference) / (ABS (Beginning Inventory + Qty of Real
Deliveries Into Stock))
Receipts made from shop orders are not considered as real
deliveries until the shop orders are closed.
At re-valuation of the beginning inventory, and depending on where the affected parts are located, one or more of the following system events might occur at a single-level update:
| Event | Debit | Credit |
| Increase of inventory value for parts in stock and of consignment stock at customer | M1 - Inventory | M18 - Purchase |
| Decrease of inventory value for parts in stock and of consignment stock at customer | M18 - Purchase | M1 - Inventory |
| Increase of inventory value for parts in consignment stock at supplier | M60 - Consignment Stock | M61 - Consignment Stock Receipt |
| Decrease of inventory value for parts in consignment stock at supplier | M61 - Consignment Stock Receipt | M60 - Consignment Stock |
| Increase of inventory value for parts in transit | M3 - Inventory Transfer | M18 - Purchase |
| Decrease of inventory value for parts in transit | M18 - Purchase | M3 - Inventory Transfer |
All the shop order
operations transactions of periodic WA parts with the applied date of the
transaction is equal or higher than the start date for periodic WA update are
updated . This update takes place during the periodic WA update process.
If there are approved cost rates in the Actual Manufacturing Cost Rates (for the
applied date of the transaction), then the operation transactions are updated
with the approved cost rates.
In the absence of approved cost rates in the Actual Manufacturing Cost Rates for
a specific work center/ labor class but approved rates exist for another work
center/ labor class in the period,
then the transactions are updated with the valid work center and labor class
cost rates defined in Cost Set 1.
For a Periodic WA part, when a labor transaction in a site (site A) has been performed by an employee belonging to a labor class in another site (site B), it is still possible to replicate the actual labor cost rates from site B. This can be done by defining and approving actual manufacturing cost rates, then perform the periodic WA update for site B and then repeating the same for site A.
Operation transactions will not be updated;
A cost variance is the difference between actual costs (i.e., true outcome from a shop order) and standard costs (i.e., budgeted costs). For a manufactured part, it is the cost variances that appear when comparing standard costs with actual costs (i.e., true outcome from a shop order) that should be used in order to achieve a correct periodic WA. This differs from when you are using inventory valuation methods standard cost, weighted average, FIFO, and LIFO. Then a cost variance posting is created when a shop order is closed.
The multi-level update almost works in the same way as the single-level update. However, to achieve correct periodic WA for a manufactured part you have to consider that there can be a part structure in which some components are purchased and others are manufactured. Therefore, an update in a part structure is performed from the lowest level up. Since purchased parts are at the lowest level in a multi-level structure, the single level update is always performed first. The cumulated cost variance for all parts is then acquired, a new periodic weighted average is calculated, beginning inventory is revalued, and costs on historic transactions for the affected parts are changed.
At revaluation of the beginning inventory, and depending on where the affected parts are located, one or more of the following system events might occur at a multi- level update:
| Event | Debit | Credit |
| Increase of inventory value for parts in stock and of consignment stock at customer | M1 - Inventory | M40 - Work in Progress |
| Decrease of inventory value for parts in stock and of consignment stock at customer | M40 - Work in Progress | M1 - Inventory |
| Increase of inventory value for parts in consignment stock at supplier | M60 - Consignment Stock | M61 - Consignment Stock Receipt |
| Decrease of inventory value for parts in consignment stock at supplier | M61 - Consignment Stock Receipt | M60 - Consignment Stock |
| Increase of inventory value for parts in transit | M3 - Inventory Transfer | M40 - Work in Progress |
| Decrease of inventory value for parts in transit | M40 - Work in Progress | M3 - Inventory Transfer |
If you decide to inactivate the periodic weighted average feature for a part, you are not allowed to have any remaining cumulated price difference or cost variance for that part. To remove any differences before inactivating the periodic weighted average feature, choose Remove Periodic WA Difference in the Operations menu, which books these amounts as price differences or cost variances. The same menu option can also be used if you want to manually remove cumulated differences, for instance at a period end. Price differences and cost variances occur when supplier invoices are matched and when you close shop orders.
When you remove the periodic WA differences and cost variances, one or more of the following system events might occur:
| Event | Debit | Credit |
| Cumulated price difference is positive | M19 - Price Diff Purch, Higher Price | M18 - Purchase |
| Cumulated price difference is negative | M18 - Purchase | M20 - Price Diff Purch, Lower Price |
| A cost variance is removed, and the cumulated variance is positive | M49 - Negative Diff of Calculation | M40 - Work in Progress |
| Cumulated cost variance is negative | M40 - Work in Progress | M48 - Positive Diff of Calculation |
Note that the start date of a periodic WA update will be the same for subsequent periodic WA updates as long as an update of inventory statistics has not been performed or transactions has not been transferred to IFS Financials. This means it is possible to update the same transactions several times. You can set a new start date in Aggregate Inventory Transactions per Period or Transfer Inventory Transactions.
The fact that all transactions are updated with correct costs when a periodic WA update is performed (and not before) means that it is highly recommended not to transfer the transactions affected by the periodic WA update to IFS Financials between the periodic WA updates. Transactions have to be transferred immediately after the periodic WA calculation has been performed. If you transfer transactions to IFS Financials between periodic WA updates, not all transactions will be considered in the update.
If you want to log changes that are made when you run a periodic WA update, you can use the feature in Foundation to track the history of database columns. This feature allows you to determine which parts of the application are to be logged. You can, for instance, set up the system to log all changes in cost amount for an inventory transaction or for cost per configuration. You can also track the columns for cumulated price difference and cost variance. Using the values in the log, you will then be able to verify that the correct calculations has been performed.
If the shop order type is repair or includes a component that is reworked, the Qty of Real Deliveries Into Stock will not include quantities that have been repaired or reworked.
So-called slow updated parts can be identified by looking for the latest date in the periodic WA re-valuation in the transaction history. A slow updated part is a part for which the cost has not been updated for a long time while, in the meantime, several periodic WA updates might have been performed.
Periodic weighted average has the following limitations: