Flat-Rate Writedown Based on Range of Coverage 

Use

In a flat-rate writedown based on the range of coverage, the system determines whether the price of a material can be reduced due to a large range of coverage.

Prerequisites

You have implemented Inventory Accounting.

Features

Calculation

The range of coverage (ROC) is calculated as follows:

 

ROC = Average Inventory Level : Average Consumption

 

Where:

·        The average inventory level is a weighted average of different period inventories less reservations and plus stock on order (depending on your entries). The periods and weighting factors can be specified in the initial screen.

·        The consumption is an average based on past consumption.

·        All selection parameters and weighting factors can be defined in the corresponding rule for balance sheet valuation.

Note the following regarding the calculation of the average inventory and average consumption:

·        When the inventory and consumption is determined, the time period to which the calculation is applied is obtained from the number of the highest relative period (within transaction FAIB01) and the period entered on the selection screen (transaction FAIB03).

·        If there is no consumption, then the ROC:

¡        Is set to maximum if inventory exists

¡        Is set to zero if no inventory exists

Writedown

A writedown percentage can be defined in the rule for balance sheet valuation that reduces the price of the material depending on the range of coverage.

Possible Settings for the Writedown Percentage

ROC in Months	Writedown
2	5%
4	10%
6	15%
10	20%

If a material has a range of coverage of four months, the writedown is 10%. If a given range of coverage is not defined, the system uses the next-smallest.

Sometimes it will not be appropriate to write down a material despite a large range of coverage, such as when most of the inventory was received during the time period covered or when a material master record was only recently created. You can specify that no writedown should take place in such cases.

Result

When you run a flat-rate writedown based on the range of coverage, you define the price to be read in the rule for balance sheet valuation.

The lowest price is calculated as follows:

 

ROC Price = Price Read – Writedown

 

The result is a list of materials with their writedown rates and ROC prices.

You can update the result of a flat-rate writedown based on the range of coverage to the price table.