Inventory : Costing Methods

Standard Price - Purchasing

Now, let's see what happens when product is ordered or replenished using this configuration. We currently have 0 in stock; lets order 50 dozen for $5.00/dozen.

We'll then process the receipt so the product enters our inventory. Read more about Purchase Orders and Receipts in our Purchase Order documentation. 

Next, from within Inventory, let's go to Products > Products and select this product. Here we can see the Cost field did not change. To see our valuation of this product, go to the menu item Reporting>Inventory Valuation, and click the Gray line to reveal the product and it's current value. 

Our inventory shows we have 50 dozen in stock with a value of $175.00, or, $3.50/dozen ($175.00 / 50 = $3.50).

Standard Price - Selling

Next, let's see what happens when we sell 25 dozen cookies (which we purchased for $3.50/dozen) for $2.00/dozen.

We'll then process the delivery so the products leave our inventory.

Next, from within Inventory, let's go to PRODUCTS > PRODUCTS and select this product. Again, we can see the Cost field did not change. We do however see the  On Hand smart button and the removal of 25 Dozens from 50, leaving us with 25. Once again, to see our valuation of this product, go to the menu item REPORTING>INVENTORY VALUATION, and click the Gray line to reveal the product and it's current value.

You'll note that each white line represents incoming value (our initial $175.00) or outgoing value (the $87.50 from the Sale Order), leaving us with a grand total of $87.50, shown on the gray line. 

For this example, we've created a product and left the Cost field at $0.00.

AVCO - Purchasing

Now, let's see what happens when product is ordered or replenished using this configuration. We currently have 0 in stock; lets order 50 dozen for $5.00/dozen.

We'll then process the receipt so the product enters our inventory.

Now, from within Inventory, let's go to Products > Products and select this product. Here we can see the Cost field updated to $5.00 because, thus far, the average cost we've paid for per dozen is $5.00. 

Let's purchase and receive another 50 dozen, but this time for $3.00/dozen.

We'll go back to Inventory, then to PRODUCTS > PRODUCTS and select this product. Here we can see the Cost field updated to $4.00 and we have 100 products in stock. We'll click the  On Hand smart button for more details.

Our inventory shows we have 10 dozen in stock with a value of $400. Here's why:

• First Purchase: 50 * $5.00 = $250.00

• Second Purchase: 50 * $3.00 = $150.00

• Total Inventory Value: $250.00 + $150.00 = $400.00

AVCO - Selling

Next, let's see what happens when we sell 50 dozen cupcakes (with an average cost of $4.00/dozen) for $2.00/dozen.

We'll then process the delivery so the products leave our inventory.

Now, from within Inventory, let's go to PRODUCTS > PRODUCTS and select this product. We can see the Cost field did not change. Now, we'll click the  On Hand smart button to see our inventory.

Our inventory shows we have 50 dozen in stock with a value of $200.00, or, $4.00/dozen ($200.00 / 50 = $4.00).

For this example, we've created a product and left the Cost field at $0.00.

We'll also be tracking our products using lots based on expiration date. The date will determine that older dates (those received first) will be used first, hence, First In First Out. 

FIFO - Purchasing

Now, let's see what happens when product is ordered or replenished using this configuration. We currently have 0 in stock; lets order 5 dozen for $8.00/dozen.

We'll then process the receipt so the product enters our inventory with lot numbers and expiration dates.

Now, from within Inventory, let's go to Products > Products and select this product. Here we can see the Cost field is $8.00. This is because we've not sold any of this product, we've only purchased one lot. That lot, being the only lot, dictates the cost.

Let's purchase and receive another 5 dozen, but this time for $10.00/dozen. We'll receive this as a different lot.

Next, let's go back to Inventory, then to PRODUCTS > PRODUCTS and select this product. Here we can see the Cost field remains at $8.00 and we have 10 dozen in stock. We'll once again go to Reporting>Inventory Valuation to see the cost changes. 

Because we're tracking this product with lots, we see two entries for inventory. Both entries have 5 dozen, and both have a value of $8.00/dozen ($45.00 per 5-dozen). Again, we've only purchased stock and not sold any so the value remains set to that of the oldest stock.

FIFO - Selling

Next, let's see what happens when we sell 8 dozen coffee mixes for $12.00/dozen. 

We'll then process the delivery so the products leave our inventory. By selling 8 dozen, we're guaranteed to pull from both lots since one lot won't be enough to fulfill the order. Note we are consuming all of the first lot purchased at $8/Dozen, and the remaining 3 from our second lot purchased at $10/Dozen. 

Now, from within Inventory, let's go to PRODUCTS > PRODUCTS and select this product. We can see the Cost field updated to $10.00. This is because the First In lot is now gone, and the second lot cost now takes affect. Go to the Inventory Valuation Report to see the updated valuation of product that remains in stock. 

Our inventory shows we have 2 dozen in stock from the second lot we purchased, which we paid $10/dozen for. This puts our inventory value at $20.00.