In this Document

Applies to:

Goal

When Inventory quantity goes negative, the inventory valuation account was credited for the full amount reflecting inventory valuation at negative dollars.

Expect the Cost Variance account in the Organization Parameters would be credited for the amount of the negative quantity times the current weighted average cost for the amount that exceeded what was in the inventory valuation account.

An Example:

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1. Beginning On Hand Quantity = 0
2. Executed miscellaneous receipt for Item 184968 for a quantity of 10, at a
value of $1 each for a total debit to inventory valuation of $10.
3. Executed a miscellaneous issue for Item 184968 for a quantity of 20 at a
value of $1 each for a total credit to inventory valuation of $20.
4. This credit of $20 should have been broke out into a credit of $10 to inventory valuation
and a credit of $10 to the cost variance account.
5. The on hand quantity after number 2 is as follows:

On Hand Quantity = -10
Inventory Valuation Dollars = -10

Solution

The cost variance account does not get used when the qty first goes negative.
Rather, it gets used to reconcile every subsequent transaction until the on
hand qty becomes zero or positive. It is there to reconcile between the
average cost and the receipt cost because until you have a zero or better
onhand qty the receipt does not cause the average to be recalculated.

So taking your example and adding further transactions would give :

Notes:
(1) Issue is performed at current average cost.
(2) Receipt is not sufficient to bring onhand to zero. So average is not
recalculated. This means that the value added to inventory ($6) does not
balance to the transaction value (12). So the difference of $6 goes to the
variance account
(3) Receipt of 15 brings the onhand qty above zero. So it is treated in 5
parts:
(4) Qty of 4 brings the onhand to zero, so this qty is treated in the same
way as (2) - average is not recalculated; value added to inventory ($4) does
not balance txn value ($10), difference ($6) goes to variance account
(5) Remaining txn qty of 11 is treated as a new, regular receipt - average
is recalculated (set to txn unit cost because the prior inventory value = $0).

This balance account distribution that will be utilized with an objective to
keep the Average Cost of the Item constant even when onhand goes Negative. To
Eliminates possibility of having ‘Zero’ Inventory Value.
Cost Variance represents the differential Inventory valuation which has
occurred due to an error in the Process.

Cost Variance Calculation logic:
In your case if we are trying to perform
1.Misc.Receipt for the same Item at $1 ,Qty:10.
Dr.Inventory Valuation Account : 10*1 : $10
Cr.Miscellaneous Account : 10*1 : $10
Current Item Cost after the Transaction : $1
2.Misc.Issue for the same Item at $1, Qty:20
Now system will ensure that the item cost will not be zero out or goes negative
& with an intention to maintain the Item cost at $1.
So Value the positive Qty at the Current Item Cost & Remaining Negative Qty in t
he User defined Miscellaneous Unit Cost.
In your case the Item Unit Cost & User defined Item cost are same it will be:
Cost Variance Value : Positive onhand Qty * Current cost + Differential
Negative Qty * User defined Cost – Misc.Issue Transaction Qty * User Defined
Item Cost
: $(10*1 + 10*1 – 20*1) : 0
So there will no Cost Variance Created

Accounting Distributions Created:
Dr. Miscellaneous Account : $ 20
Cr.Inventory Valuation Account : $ 20

Let us consider a below scenario :
1.Misc.Receipt for the same Item at $1 ,Qty:10.
Dr.Inventory Valuation Account : 10*1 : $10
Cr.Miscellaneous Account : 10*1 : $10
Current Item Cost after the Transaction : $1
2.Misc.Issue for the same Item at $2, Qty:20
In this case the Item Unit Cost & User defined Item cost are not same:
Cost Variance Value : Positive onhand Qty * Current Item cost + Differential
Negative Qty * User defined Cost – Misc.Issue Transaction Qty * User Defined
Item Cost
: $(10*1 + 10*2 – 20*2 ) : $(30 – 40) : $10
Above Differential value will be factored into the Cost Variance Account.

Accounting Distributions Created:
Dr. Miscellaneous Account : $ 40
Cr.Inventory Valuation Account : $ 30
Cr.Average Cost Variance Account : $ 10

Verify the Item Cost Details for the Current Item Cost.

When you have onhand inventory quantity or inventory value crossing the boundary of zero, cost variance could happen. 
That is designed and intended behavior.  

To prevent it, the user needs to disallow negative inventory.  

Development cannot provide a data fix tor this as it is the correct behaviour,

If the user does not like a balance to be in cost variance account, they should either adjust it manually in GL or could do an average cost update transaction by using the cost variance account as the adjustment account.