Detailed Example 2 Protected QTY More than On Hand

This section describes how input file (or manually entered price protection information) is processed.  In this case, the vendor is protecting the AP3000 item and the new vendor price for the item is 200.00 USD.

Local Currency Line  


Vendor Name



New LC Price


Text Note


Bay Area Systems





Text to be added to comment

Foreign Currency Line


Vendor Name



FC Price


Bay Area Systems




If the above price protection transactions are processed when there are 11 units of the item on hand, local currency is USD and the current cost of the item is 211.0519, the system would do the following.

      The system calculates the total on hand in the inventory locations within the specified division (11 units).

      The system calculates the total value of the item across all locations (11 units multiplied by 211.0519 or 2321.5709).

      The system uses the smaller of the quantity being protected (15 units) or the on hand qty for the item (11 units) and the difference between the current item cost and the protected cost to determine the change to inventory and the new average cost for the item..  11 units * 11.0519 or 121.5709 is the change to the on hand inventory value.  2321.5709 (the total value on hand) 121.5709 (the change to the inventory value) is 2200.0000.  2200.0000 /11 units (on hand quantity) is used to calculate the new average cost for the item which is 200.0000

      The system updates the average cost of the items in the locations being processed (the new cost is 200.0000 in this case).

      The system writes inventory activity records with a type of PP (Price Protection).  These records store the prior and new cost for the item in each location and the quantity on hand in each location when the transaction was processed.  The system also uses the inventory transaction records to write a journal entry for the transaction.  The journal entry is made to the Price Protection Receivable Account, and to the Inventory Control Account and the Cost of Sales Account defined in the Product Line that the inventory item is assigned to.  The journal entry amounts are based on the following logic.

Price Protection Receivable the total difference between the old (current average cost) and the new protected price from the vendor multiplied by the total number of units being protected.  In the above example, this would be 15 units * 11.0519 or 165.7785

Inventory the lesser of the total quantity being protected or the total quantity on hand when the transaction is processed, multiplied by the total difference between the old (current average cost) and the new protected price for the vendor.  In this case, the on hand quantity of 11 is less than the quantity protected so 11*110.5190 or 121.5709 is the effect on the on hand inventory and the amount that is posted to the control account.

Cost of Sales The total quantity protected (15) less the total quantity on hand (11) multiplied by the change in cost of 11.0519 is 44.21.  In this example, the amount is not negative, so a posting is made to cost of sales.

The total journal entry (rounded to 2 decimals) would be

Price Protection Receivable 165.78

     Inventory                121.57

     Cost of Sales             44.21

      The system checks for any open local currency PO lines for the vendor and item being processed.  If it finds any open records, the system updates the PO price with the new protected vendor cost (200 in this case) and it writes a Data Change record for the change to the PO line.

      If a foreign currency and foreign currency price has been specified in the input file, the system checks for any open purchase order lines and any QVL records for the vendor and item being processed that are in the specified currency.  If found, the system updates the records with the specified foreign currency price and it writes data change records to record the modifications. This ensures that future purchase orders and purchase order receipts that are processed in that currency use the correct vendor price information.