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author's profile photo Former Member
Former Member

Refurbishment process..

hi guru ,

i have bit dout. in refurbishment process..related to price

in my screen shot.

A:- price is 1959(issue to work shop) before that it's price is 1900 so my dout the price will rise when i am sending this into work shop.?

B:-1976 this price rise again...??

C:-1934(this time reduce).???

D:-2384 subtract (reduce)??

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    author's profile photo Former Member
    Former Member
    Posted on Apr 26, 2012 at 04:55 PM

    Hi Ronak,

    A:- price is 1959(issue to work shop) before that it's price is 1900 so my dout the price will rise when i am sending this into work shop.?

    The price you mentioned is a moving average price in the material master. which is calculated as

    ((Price of C1 X Qty C1)+(Price C2 X Qty C2)+(Price C3 X Qty C3)) / (Total QTY C1 + C2 +C3)

    In this case you are issuing material to workshop, so total Qty is reducing, hence as per formula, increase in the moving average price.

    B:-1976 this price rise again...??

    When you return the material to the store after refurbishment, Qty of C2 material gets increase which has higher price than C3 (i.e. 2500 in this case). So as per above formula, moving average price of material gets increase.

    D:-2384 subtract (reduce)??

    Now when you settle the refurbishment order, as explained by Mihir, actual cost to refurbish the material was less than the unit price of C2 (lets say its approx around 1224), which should get settled on the C2 material itself ? So again by using same logic as above, moving average price of C2 will be calculated as,

    ((C2 price before return X C2 Qty before return) + (Actual cost of refurbish order X Qty of C2 returned)) / (Total C2 qty)


    C:-1934(this time reduce).???

    As explained earlier, as price of C2 gets reduced due to settlement, moving price of the material gets reduce.

    Hitesh


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  • author's profile photo Former Member
    Former Member
    Posted on Apr 26, 2012 at 09:23 AM

    Hi Ronak,

    What is a actual cost of refurbishment order ?? As per your given data I can figure out it would be 1224 ?

    Hitesh

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    • Former Member Former Member

      Hello,

      In this particular case, the cost incurred on the maintenance order is less than the difference between the cost of material for valuation type C2 and valuation type C3. And hence the actual cost on the maintenance order is negative.

      For example:

      Total Actual Cost =

      Total Issued Material - 200

      + Total Service Cost - 1000 (Approximate assumption)

      - Total Received Material Cost - 2500

      Total Actual Cost = -1300.

      This negative cost is then getting settled on the material master as per the settlement rule and reduces the price.

      Purpose of using refurbishment is to reduce the cost of procuring a new material and convert the existing non-working material.

      Logically speaking, we are converting a material with a price of 200 (C3) to a material with price of 2500(C2) and hence the average price of C2 is coming down, which is ultimately affecting the total price.

      Thanks & Regards,

      Mihir Popat

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