The value of a commodity is set not by the vendors who sell it, but rather by overall supply and demand considerations in the commodity market. This value is typically determined by an external agency or organization, which continually adjusts the market price of the commodity according to fluctuations in supply and demand. Whenever commodity costs are published, companies that purchase the commodity can update the item's inventory value according to the latest information.
While several purchases of a commodity can be combined as they enter inventory, for the purpose of issuing payments to vendors they must be kept separate. When a commodity manifest is posted, purchase lines are added to documents for each vendor listed in the manifest. The costs on these purchase lines are updated according to the same cost factors used to calculate the commodity's inventory value.
Although cost factors can provide greater accuracy in calculating purchase costs, the wait typically required before new cost factors are released can result in purchase orders that must remain unposted for an extended period. As a result, companies that purchase commodities from vendors commonly issue advance payments for open purchases prior to invoicing.
The following table describes a sequence of activities, with links to the topics that describe them. These activities are listed in the order in which they are generally performed.
To | See |
|---|---|
Learn about the changing cost factors used to calculate commodity costs, and how a commodity's inventory value can differ from the value on related purchases. | |
Record new cost factors and update commodity costs. | |
Determine advance payments to vendors for purchases that have been received but not invoiced. | |
Recalculate purchase lines for commodities according to updated commodity costs, then post the purchase as invoiced. |