Automatic Cost Adjustment in Business Central

A Guide to Automatic Cost Adjustment

If you’ve ever been in the “Inventory Setup” page of Business Central, you’ve seen the field “Automatic Cost Adjustment”.
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This setting has been a topic of discussion here at Ternpoint. We’ve seen our clients struggle first-hand to wrap their heads around what Automatic Cost Adjustment actually does.

Here’s what Business Central says about Automatic Cost Adjustment (brace yourself):

“Specifies if item value entries are automatically adjusted when an item transaction is posted. This ensures correct inventory valuation in the general ledger, so that sales and profit statistics are up to date. The cost adjustment forwards any cost changes from inbound entries, such as those for purchases or production output, to the related outbound entries, such as sales or transfers. To minimize reduced performance during posting, select a time option to define how far back in time from the work date an inbound transaction can occur to potentially trigger adjustment of related outbound value entries. Alternatively, you can manually adjust costs at regular intervals with the Adjust Cost - Item Entries batch job.”

Ok, that is a lot of words; lets break it down.

First of all, what is an adjustment? Here’s a simple example:

You post a purchase for $10, sell the item, then later receive an invoice for $12…

Business Central needs to push the updated inbound cost ($12) forward to the outbound entry (the sale), increasing COGS by $2 and reducing profit accordingly. Without this adjustment, your inventory and profit reporting are technically wrong, even though the purchase was initially correct at the time it was posted.

Automatic Cost Adjustment determines when the system performs this cleanup (layering new value entries under an item ledger entry for my finance and accounting people).

We know we want correct inventory valuation in the general ledger, so why not set this to “Always”? Performance. If you’re constantly posting due to high transaction volume, your users will experience delays and frustration.

What about those other settings?

Sure, you could try to figure out what setting you need to use to reduce delays while still getting the most accurate inventory valuation, but why play the guessing game? An increased volume based on your business model leaves you with another setting to monitor.

Set Automatic Cost Adjustment to “Never”

At Ternpoint Solutions, we always aim to implement scalable solutions. Running a job queue for the “Adjust Cost – Item Entries Job” during off-hours can be the way to go. This adjusts costs once per day, and it does not impact the users of your system. The caveat to this is if you run a profitability report that includes that COGS example above, it will show $10 not 12 as the cost of that item.

An even more complicated example might be if you receive that item at 10$, consume it in a production order into a WIP item, that WIP item is then used in a new batch along with several other new and WIP items to create a finished product. Following the creation of the finished product, that item is then transferred to a different warehouse and sold to various customers. A month later, the actual invoice comes in from the vendor at the $12 mentioned above for one of the components. The ‘magic’ of the adjust cost routine will push that additional 2 dollars through all the downstream transactions, so everything is trued up. This can be a system intensive process to do in real time when posting purchase invoices. The user could be stuck waiting for 10-20 seconds while the adjust cost runs following the posting of the invoice making all relevant related entries. With the Adjust Cost process running on the job queue, the posting only takes a second and the user can move on to other tasks, with system wide updates happening in the evening.

The same situation applies to item charges. If inventory is received at $10 and a $2 item charge for freight is applied to it, that $2 in freight needs to be pushed downstream through the related transactions. The adjust cost process in BC does that for you as well.

Final thoughts

‍Everyone would love to have up real time accurate profitability tracking on inventory. Business Central base functionality allows for this, as the user can set Adjust Cost set to Always, that way prices are constantly being updated. If users begin to run into time related issues due to a large volume of invoices to post or multi-step manufacturing processes, they are able to set Adjust Cost to Never, thus allowing the job queue to complete the task in the evening.

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