![]() The following examples illustrate the effect of using weighted average with five different configurations: Settlements are inventory close postings that adjust the issues to the correct weighted average as of the closing date. Weighted average = ( + + ) รท (Q1 + Q2 + Q n).The weighted average inventory costing method is calculated by the following formula: Unless you're using marking, the running average is calculated when the physical or financial update is performed. Until you run the inventory close process, issue transactions are valued at the running average when the physical and financial updates occurred. A periodic inventory close is required when you use the weighted average inventory model to create settlements and adjust the value of issues according to the weighted average principle. You can override the weighted average principle by marking inventory transactions so that a specific item receipt is settled against a specific issue. Any inventory that is on hand after the inventory close is performed is valued at the weighted average from the previous period and included in the weighted average calculation in the next period. This settlement method is referred to as a direct settlement. If there is only one receipt, all issues can be settled from it and the virtual transfer will not be created. This settlement method is called a weighted average summarized settlement. The virtual issue and receipt can be seen as a virtual transfer, which is named the weighted average inventory closing transfer. In this manner, all issues get the same average cost. This virtual issue has a corresponding virtual receipt from which the issues are settled. Typically, all receipts are settled against a virtual issue, which holds the total received quantity and value. When you run an inventory closing using the weighted average inventory model, there are two ways a settlement can be created. Another way to say this is that weighted average is an inventory model that assigns the cost of issue transactions based on the mean value of all inventory received during the period, plus any on-hand inventory from the previous period. Weighted average is an inventory model based on an average that results from the multiplication of each component (item transaction) by a factor (cost price) reflecting its importance (quantity).
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