Inventory Cost Methods
DATE ADDED: 10/05/2020
The new Inventory Cost Method company setting allows a company to select in which method they would like cost calculated after receiving a PO. These different methods can adjust the cost of items based on what has been received. This allows you to calculate the cost in a way that is up-to-date and most effective for your business. Does Not Affect Cost, Average or LIFO are the options available!
- Does Not Affect Cost will not affect the cost of received items.
- The Average method will calculate an average price between what the product was received at and what it is being received at using the following formula: ((QTY ON HAND * CURRENT COST) + (RECEIVED QTY + RECEIVED COST) ) / NEW TOTAL QTY. If you have an item with a quantity of 1 and a cost of $10 and a new PO you receive with 1 the same item but the new cost is $20 – then the average setting would change the cost of the item to $15.
- The LIFO method of receiving inventory will change the new cost to the last received cost of the item, meaning the RECEIVED COST is assigned to the inventory item. The old cost is $10 for an item– you now receive it at $15. LIFO will now change the cost of the item to $15.
- Company Settings > General Options > Inventory Cost Method