Limit of val var absorption
Three parameters are defined to determine how variances are handled when an adjustment is made, and the associated product has already been issued:
- MAXABSCOD - Valuation variance absorption (STO chapter, VAL group)
- MAXABSPER - Maximum percentage of over-absorption (STO chapter, VAL group)
- ABSLIM - Limit of value variance absorption (STO chapter, VAL group)
MAXABSCOD
MAXABSCOD - Valuation variance absorption determines the absorption basis. This parameter determines which stock is included in the calculations, and how much of the variance can be absorbed. MAXABSCOD can be set to one of the following values:
No: Absorb everything possible.
Absorption on site: Only consider stock available at the site.
Absorption on site/lot: Only consider stock available in the lot.
MAXABSPER
MAXABSPER - Maximum percentage of over-absorption sets the over-absorption percentage. This parameter defines whether the remaining stock absorbs extra cost based on a percentage of its new total. The defined percentage value determines the cost variance amount that can be absorbed into the remaining stock on hand. The remaining variance amount, that is the amount that exceeds the defined percentage, is recorded in the Stock journal tables as a Variance not absorbed.
ABSLIM
ABSLIM (this parameter) limits any absorptions to be made if the same FIFO tier (receipt line or cost tier) is in stock.
No: This is the default value for this parameter. There is no limit to the amount of the variance to be absorbed. The variance is applied in full to the remaining stock, potentially increasing the average cost of the product.
Yes: A limit is applied to the amount to be absorbed. The variance absorption is limited based on the remaining stock associated with the FIFO tier/receipts linked to the adjusted invoice. The variance will be prorated based on the remaining quantity in stock. If the FIFO tier is no longer in stock the variance will not be absorbed to prevent increasing the average cost of the product.
Set to Yes, this parameter is only applied to valuation methods using Cumulative AUC/Cumulative AVC and Lot AUC/Lot AVC as the calculation basis.
Sage recommends this parameter is set to No for Lot AVC methods of stock valuation, unless multiple stock entries will be created for the same lot number.
The value of this parameter does not impact products using FIFO and LIFO valuation methods. This parameter is forced to the value Yes for those products by the adjustment on receipt process.
Examples: Variance absorption basis on Site
Example 1: Products using the average cost (AVC) method of stock valuation
MAXABSCOD = Site MAXABSPER = 0 ABSLIM = No | MAXABSCOD = Site MAXABSPER = 0 ABSLIM = Yes | |||||
|---|---|---|---|---|---|---|
| Document | Stock | Cost tier | AVC | Stock value | AVC | Stock value |
| Receipt #1: Quantity = 10; Price = 10. | 10 | Receipt #1: Quantity = 10 | 10 | 100 | 10 | 100 |
| Receipt #2: Quantity = 10; Price = 20. | 20 | Receipt #1: Quantity = 10 Receipt #2: Quantity = 10 | 15 | 300 | 15 | 300 |
| Delivery quantity = 11 | 9 | Receipt #2: Quantity = 9 | 15 | 135 | 15 | 135 |
| Invoice #1 on Receipt #1 Price = 100 (900 needs to be absorbed at 90 per unit). | 9 | Receipt #2: Quantity = 9 | 105 | 945 (+ 90 not absorbed) | 15 | 135 (+ 900 not absorbed) |
Results with ABSLIM = No
There is stock on hand, therefore the "per unit absorption" (90) can be applied to the remaining stock (9).
Of the 900 at the start that needed to be absorbed, 810 was absorbed.
The next step is to check the MAXABSPER - % maximum of over-absorption parameter (STO chapter, VAL group) to see if more can be absorbed per unit. The value is set to 0. The remaining 90 is not absorbed.
Results with ABSLIM = Yes
There is stock on hand, however the cost tier of Receipt #1 has already been used.
With ABSLIM = Yes, this only forces a change to the original cost tier for any variance absorption. As the cost tier has been used, the variance cannot be absorbed.
Example 2: Products using the average cost method (AVC) of stock valuation with a maximum absorption percentage
MAXABSPER can be set to a value greater than 100. MAXABSPER simply sets the maximum value that can be absorbed.
| MAXABSPER = 0 | |||||
|---|---|---|---|---|---|
| Document | Stock | Cost tier | AVC | Stock value | Not absorbed |
| Receipt #1: Quantity = 10; Price = 10. | 10 | Receipt #1: Quantity = 10 | 10 | 100 | 0 |
| Delivery quantity = 9 | 1 | Receipt #1: Quantity = 1 | 10 | 10 | 0 |
| Invoice #1 on Receipt #1 Price = 100 (900 needs to be absorbed at 90 per unit). | 1 | Receipt #1: Quantity = 1 | 100 | 100 | 810 |
| End values with different MAXABSPER values | ||||||||
|---|---|---|---|---|---|---|---|---|
| MAXABSPER = 10 | MAXABSPER = 50 | MAXABSPER = 100 | ||||||
| AVC | Stock value | Not absorbed | AVC | Stock value | Not absorbed | AVC | Stock value | Not absorbed |
110 | 110 | 800 | 150 | 150 | 760 | 200 | 200 | 710 |
In the examples in the tables above, the value of the ABSLIM parameter is irrelevant.
Reminder: The ABSLIM parameter is only applied if absorption of a variance is being limited to the same cost tier. The examples in the table above only have a single cost tier, therefore ABSLIM is irrelevant.
Results with MAXABSPER = 0
900 needs to be absorbed at 90 per unit. There is only 1 unit available.
The 90 is applied. The new total = 100.
As MAXABSPER = 0, 90 is the only amount that can be applied. The remaining 810 is not absorbed.
Results with MAXABSPER = 10
900 needs to be absorbed at 90 per unit. There is only 1 unit available. Absorption is permitted based on the value of MAXABSPER = 10.
Apply a percentage of the new unit cost (100). Add 10. The new total = 110.
As MAXABSPER = 10, 100 is applied. The remaining 800 is not absorbed.
Results with MAXABSPER = 50
900 needs to be absorbed at 90 per unit. There is only 1 unit available. Absorption is permitted based on the value of MAXABSPER = 50.
The new unit cost = 150. The remaining 760 is not absorbed.
Results with MAXABSPER = 100
900 needs to be absorbed at 90 per unit. There is only 1 unit available. Absorption is permitted based on the value of MAXABSPER = 100.
The new unit cost = 200. The remaining 710 is not absorbed.
Examples: Variance absorption basis on Site/Lot
Example 1: Products using the average cost (AVC) method of stock valuation
Operating principle with the average cost (AVC) method of stock valuation:
- If stock exists, a cost variance can be absorbed if the receipt is still in the FIFO tier (FIFO constraint applied because ABSLIM = Yes).
- If there is no stock, a cost variance cannot be absorbed. A Variance not absorbed is created.
ABSLIM = No | ABSLIM = Yes | |||||
|---|---|---|---|---|---|---|
| Document | Stock | FIFO tier | AVC | Stock value | AVC | Stock value |
| Receipt #1: Quantity = 10; Price = 10. | 10 | Receipt #1: Quantity = 10 | 10 | 100 | 10 | 100 |
| Receipt #2: Quantity = 10; Price = 10. | 20 | Receipt #1: Quantity = 10 Receipt #2: Quantity = 10 | 10 | 200 | 10 | 200 |
| Delivery quantity = 10 | 10 | Receipt #2: Quantity = 10 | 10 | 100 | 10 | 100 |
| Invoice #1 on Receipt #1 Price = 12 (+ 2 per unit = + 20). | 10 | Receipt #2: Quantity = 10 | 12 | 120 | 10 | 100 (+ 20 of variance not absorbed) |
| Invoice #2 on Receipt #2 Price = 12 (+ 2 per unit = + 20). | 10 | Receipt #2: Quantity = 1 | 14 | 140 | 12 | 120 |
Results with ABSLIM = No
Invoices #1 and #2: The price variance was absorbed.
The average cost (14) value exceeds the purchase price entered in purchase Invoice #1 (12) and Invoice #2 (12), because the remaining stock (10 units) was adjusted twice.
Results with ABSLIM = Yes
Invoice #1: There is stock on hand so the price variance could be absorbed. A Variance not absorbed is created because Receipt #1 is no longer in the FIFO tier (ABSLIM = Yes).
Invoice #2: There is stock on hand so the price variance could be absorbed. The variance is absorbed because Receipt #2 is still in the FIFO tier (ABSLIM = Yes).
Only Invoice #2 adjusts the stock value because it relates to Receipt #2 which is still in the FIFO tier. The average cost is not overvalued (12) in comparison to the purchase price entered in Invoice #1 (12) and Invoice #2 (12).
The inconsistencies evident for the same scenario when ABSLIM is set to No are minimized (AVC = 14).
Example 2: Products using the average lot price (Lot AVC) method of stock valuation
Operating principle with the average lot price (Lot AUC) method of stock valuation:
- If there is a price variance on an invoice, check if stock still exists for the lot:
- If stock exists for the lot, the price variance can be absorbed if the receipt is still in the FIFO tier (FIFO constraint applied because ABSLIM = Yes).
A FIFO tier permits the order of receipt to be defined. This situation can arise if the lots are not consumed in the same order as they were received. - If there is no stock, a price variance cannot be absorbed. A Variance not absorbed is created even if the receipt is still in the FIFO tier (ABSLIM is not considered in this situation).
For this example, 1 stock entry is created per lot number.
ABSLIM = No | ABSLIM = Yes | ||||||
|---|---|---|---|---|---|---|---|
| Document | Lot | Stock | FIFO tier | Lot AVC | Stock value | Lot AVC | Stock value |
| Receipt #1: Quantity = 10; Price = 10. | A | Lot A: 10 | Receipt #1: Quantity = 10 | Lot A: 10 | Lot A: 100 | Lot A: 10 | Lot A: 100 |
| Receipt #2: Quantity = 10; Price = 10. | B | Lot A: 10 Lot B: 10 | Receipt #1: Quantity = 10 Receipt #2: Quantity = 10 | Lot A: 10 Lot B: 10 | Lot A: 100 Lot B: 100 | Lot A: 10 Lot B: 10 | Lot A: 100 Lot B: 100 |
| Delivery quantity = 10 | B | Lot A: 10 | Receipt #2: Quantity = 10 | Lot A: 10 | Lot A: 100 | Lot A: 10 | Lot A: 100 |
| Invoice #1 on Receipt #1 Price = 12 (+ 2 per unit = + 20). | A | Lot A: 10 | Receipt #2: Quantity = 10 | Lot A: 12 | Lot A: 120 | Lot A: 10 | Lot A: 100 (+ 20 of variance not absorbed) |
| Invoice #2 on Receipt #2 Price = 12 (+ 2 per unit = + 20). | B | Lot A: 10 | Receipt #2: Quantity = 10 | Lot A: 12 | Lot A: 120 | Lot A: 10 | Lot A: 100 (+ 20 of variance not absorbed) |
Results with ABSLIM = No
Invoice #1: Applies to Lot A which still exists in stock. The price variance can be absorbed. Receipt #1 is no longer in the FIFO tier, but this is irrelevant as ABSLIM = No.
Invoice #2: Applies to Lot B which is no longer in stock. The price variance cannot be absorbed. A Variance not absorbed is created. As the product is no longer in stock, ABSLIM is irrelevant.
Results with ABSLIM = Yes
Invoice #1: Applies to Lot A. There is still stock on hand from Lot A so the price variance could be absorbed. A Variance not absorbed is created because Receipt #1 is no longer in the FIFO tier (ABSLIM = Yes). This situation occurred because Lot B was used before Lot A.
Invoice #2: Applies to Lot B. There is no stock for Lot B so the price variance cannot be absorbed. A Variance not absorbed is created. ABSLIM is irrelevant because the product is no longer in stock.
This example has 1 stock entry per lot number. It is considered the most common scenario. Sage recommends that for this type of situation ABSLIM should be set to No to avoid triggering variances which are not absorbed because lot numbers are not used sequentially, that is, the FIFO rule is not being respected.
Example 3: Products using the average lot price (Lot AVC) method of stock valuation
Operating principle with the average lot price (Lot AUC) method of stock valuation:
- If there is a price variance on an invoice, check if stock still exists for the lot:
- If stock exists for the lot, the price variance can be absorbed if the receipt is still in the FIFO tier (FIFO constraint applied because ABSLIM = Yes).
A FIFO tier permits the order of receipt to be defined. This situation can arise if the lots are not consumed in the same order as they were received. - If there is no stock, a price variance cannot be absorbed. A Variance not absorbed is created even if the receipt is still in the FIFO tier (ABSLIM is not considered in this situation).
For this example, multiple stock entries are created per lot number.
ABSLIM = No | ABSLIM = Yes | ||||||
|---|---|---|---|---|---|---|---|
| Document | Lot | Stock | FIFO tier | Lot AVC | Stock value | Lot AVC | Stock value |
| Receipt #1: Quantity = 10; Price = 10. | A | Lot A: 10 | Receipt #1: Quantity = 10 | Lot A: 10 | Lot A: 100 | Lot A: 10 | Lot A: 100 |
| Delivery quantity = 10 | A | 0 | |||||
| Receipt #2: Quantity = 10; Price = 10. | B | Lot B: 10 | Receipt #2: Quantity = 10 | Lot B: 10 | Lot B: 100 | Lot B: 10 | Lot B: 100 |
| Receipt #3: Quantity = 10; Price = 10. | A | Lot A: 10 Lot B: 10 | Receipt #2: Quantity = 10 Receipt #3: Quantity = 10 | Lot A: 10 Lot B: 10 | Lot A: 100 Lot B: 100 | Lot A: 10 Lot B: 10 | Lot A: 100 Lot B: 100 |
| Invoice #1 on Receipt #2 Price = 12 (+ 2 per unit = + 20). | B | Lot A: 10 Lot B: 10 | Receipt #2: Quantity = 10 Receipt #3: Quantity = 10 | Lot A: 10 Lot B: 12 | Lot A: 100 Lot B: 120 | Lot A: 10 Lot B: 12 | Lot A: 100 Lot B: 120 |
| Invoice #2 on Receipt #1 Price = 12 (+ 2 per unit = + 20). | A | Lot A: 10 Lot B: 10 | Receipt #2: Quantity = 10 Receipt #3: Quantity = 10 | Lot A: 12 Lot B: 12 | Lot A: 120 Lot B: 120 | Lot A: 10 Lot B: 12 | Lot A: 100 (+ 20 of variance not absorbed) Lot B: 120 |
| Invoice #3 on Receipt #3 Price = 12 (+ 2 per unit = + 20). | A | Lot A: 10 Lot B: 10 | Receipt #2: Quantity = 10 Receipt #3: Quantity = 10 | Lot A: 14 Lot B: 12 | Lot A: 140 Lot B: 120 | Lot A: 12 Lot B: 12 | Lot A: 120 Lot B: 120 |
Results with ABSLIM = No
Invoice #1: Applies to Lot B which still exists in stock. The price variance can be absorbed.
Invoice #2: There is still stock on hand from Lot A. The price variance can be absorbed. The FIFO tier is irrelevant because ABSLIM = No.
Invoice #3: There is still stock on hand from Lot A. The price variance can be absorbed. The FIFO tier is irrelevant because ABSLIM = No.
Conclusion: Lot A is revalued twice. The Lot AVC now = 14. This appears to be inconsistent when compared to the purchase price entered for Invoice #2 and Invoice #3 (12). Sage recommends this parameter is set to No to avoid potentially increasing the average cost of the product.
Results with ABSLIM = Yes
Invoice #1: Applies to Lot B. There is still stock on hand from Lot B so the price variance could be absorbed because Receipt #2 is still in the FIFO tier (ABSLIM = Yes).
Invoice #2: There is still stock on hand from Lot A so the price variance could be absorbed. A Variance not absorbed is created because Receipt #1 is no longer in the FIFO tier.
Invoice #3: There is still stock on hand from Lot A so the price variance could be absorbed. Receipt #3 is still in the FIFO tier. The price variance is absorbed.
Conclusion: Lot A is revalued once. This avoids an increase to the average cost of the lot. Sage recommends this parameter is set to No however, if your system is set for multiple stock entries to be created for the same lot number you could consider setting ABSLIM to Yes.
Level of localization/Global variable
This parameter is defined at the level Site.It belongs to Chapter STO (Inventory) and the Group VAL (Valuation),The following parameters are also associated with this chapter and group :
- MAXABSCOD (Valuation variance absorption )
- MAXABSPER (% maximum of over-absorption)
- OVECOLSTK (Stock overhead column)
No global variable is associated with it.
Functions impacted
The following functions are associated with this parameter :
Purchasing > Invoices > Invoice validation
Costing > Production costs > WIP finalization
Costing > Subcontract costs > Calculate actual subcon. cost