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# Inventory Management Valuation Methods

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Hi,

Looking for your insights into the the following questions around inventory valuation methods.

1. Average Cost Calculation:
1. Is the average cost recalculation triggered only on a purchase?
2. If a purchase is back dated after a sale has already been posted does the system recalculate the cost on that sale to reflect the true average cost?
2. FIFO Cost Calculation
1. If a purchase is back dated after a sale has already been posted does the system recalculate the cost on that sale to reflect the proper FIFO cost?
2. Inventory Adjustments:  Under FIFO do all inventory adjustments need to be matched to a prior purchase?
3. Negative Inventory:
1. Average Cost:  If inventory sold into a negative position and purchase back dated will system adjust costs to accurate average cost or just use the last cost for sales made?
2. FIFO:  If inventory sold into a negative position and purchase back dated will system adjust costs to accurate FIFO cost or just use the last cost for the sales made?

Thanks,

Hari

### 2 replies

Hello - as far as the AVG Cost calculation it is very simple. Whatever the total \$ are for the Item divided by the total Quantity OH. And if the Item is OOS then the AVG cost results to \$0.

Userlevel 7
+16

HI @hmukundan

Here is what the help says on each of those:

Average Cost:

If the Average valuation method is assigned to a stock item, the unit cost will be calculated as the average weighted cost of all items at the warehouse—that is, the total costs of all quantities of the items at the warehouse divided by the total quantity of this item at this warehouse.

The system updates the average cost of stock items every time any of the following documents is released:
• Inventory receipt
• Inventory issue
• Transfer
• Kit assembly
• Kit disassembly
After the release of the document, a batch of journal entries is generated to adjust the costs of all available items that are assigned the Average valuation method. You can view the current average cost in the Average Cost read-only box on the Price/Cost tab of the Stock Items (IN202500) form.
When a stock item with the Average valuation method is issued from inventory, the unit cost is inserted in the Unit Cost box on the Issues (IN302000) form.

FIFO:

If the FIFO (first in, first out) valuation method is assigned to a stock item in the Valuation Method box on the General tab of the Stock Items (IN202500) form, the item's unit cost is recorded in layers. Each cost layer is identified by the receipt date, item quantity, and purchase price (unit cost).

On the release of each new receipt on the Receipts (IN301000) form or purchase receipt on the Purchase Receipts (PO302000) form, when a GL batch is posted, the system creates a new cost layer with a specific unit cost. You can view the cost of the last cost layer in the Last Cost box on the Price/Cost tab of the Stock Items (IN202500) form.
By default, the item cost is zero until it has been automatically or manually assigned.
When a certain quantity of a stock item is issued, the cost for the item is assigned starting with the earliest available cost layer. If the quantity to be issued is greater than the quantity in the earliest layer, this quantity is issued as follows:
• The entire quantity from the earliest cost layer will be issued (with the associated unit cost).
• The rest of the required quantity will be issued from the next earliest cost layer (with another associated unit cost).
If an item has the FIFO valuation method assigned, costs of its units may be different, and the Unit Cost box on the Issues (IN302000) form displays the unit cost for the first unit to be issued, in accordance with the inventory item’s issue method. You can open the Line Details dialog box to view particular items to be issued or to select them by lot or serial numbers. The Ext. Cost value on the Issues form will automatically appear as the sum of the unit costs of all listed items.

Negative QTY:

Negative quantities at a warehouse location occur when the quantity of the item in the inventory issue on the Issues (IN302000) form or on the Stock Components tab of the Kit Assembly (IN307000) form is greater than the on-hand quantity of the item at this location. For the over-issued quantity, a new cost layer is created. The cost is determined as follows:
• For items with the Average Cost valuation method and non-zero quantity on hand, the average cost of the item is used.
• For items with the Average Cost valuation method and on hand quantity equal to zero, the last cost of the item is used.
• For items with the FIFO valuation method, the last cost of the item is used.
• For items with the Standard cost valuation method, the standard cost is used.
On the Journal Transactions (GL301000) form, the system inserts separate entries for the available quantity of the item and for the over-issued quantity of the item to the GL batch related to the issue.
Suppose that you need to issue 10 pieces of the APJAM32 item. The item has the FIFO valuation method, the available quantity is 6, and the last cost is 20. The resulting transaction in the GL batch will look as follows:
Account    Quantity    Debit    Credit
Inventory account    -6    0.0    120.0
AR Accrual Account    6    120.0    0.0
Inventory account    -4    0.0    80.0
AR Accrual Account    4    80.0    0.0
When the item is delivered to the warehouse and you create and release a receipt on the Receipts (IN301000) form, in the GL batch which is related to this receipt, the system automatically creates two adjusting entries for the over-issued quantity of the issue, in which the quantity of the item went negative. The first entry debits the inventory account and credits the AR accrual account. The item cost is copied from the cost in the cost layer for the over-issued quantity and the inventory account is copied from the GL batch related to the issue which caused the negative quantity. The second entry debits the AR accrual account and credits the inventory account. The cost is copied from the receipt and the inventory account is copied from the main entry of the GL batch related to the receipt.
Suppose that you have created and released the receipt of 20 pieces of APJAM32 to the location in which you still have negative quantity of -4 pieces of APJAM32 from the issue. The cost of the item in the receipt is 25. The resulting transaction in the GL batch will look as follows:
Account    Quantity    Debit    Credit
Inventory Asset    20    500    0.0
AP Accrual Account    -20    0.0    500
Inventory Asset    4    80.0    0.0
AR Accrual Account    -4    0.0    80.0
Inventory Asset    -4    0.0    100.0
AR Accrual Account    4    100.0    0.0
The system inserts the reference number of the issue, for which the additional entries are created, to the Ref. Nbr. column of the Journal Transactions form (Details tab) in the lines of the adjusting entries. Also, the system updates the value of the Ext. Cost column on the Issues (IN302000) form in the line which caused the negative quantity of the item.

You can also find the information here:

https://help.acumatica.com/(W(1))/Help?ScreenId=ShowWiki&pageid=79edcbf8-e18b-4817-875f-6cbfd7a32384