In the first of our series of blogs outlining the various Inventory Control Costing Methods in Sage 300 ERP, we want to start things off by introducing you to the different Costing Methods you will find in the Inventory Control module.
- Weighted Moving Average or Average Cost: The most common costing method that is calculated by dividing the total cost at one location by the total quantity cost on hand at that location.
- FIFO aka First-In/First-Out: This method is used to try and match current revenues with the oldest costs because it is assumed that you are selling or shipping the oldest quantity on hand. Please note that costs are kept in “buckets”. Also, each “bucket” in itself is calculated using average unit cost.
- LIFO aka Last-In/First-Out: Not a very common accounting method and there may be some industries or countries where LIFO is not an accepted accounting method. It also assumes that you ship out the most recently purchased goods. Therefore, units on hand are assumed to be from the oldest purchases. And just like FIFO, costs are kept in “buckets”.
- Standard Costing: This costing method is defined by you, the user, and is entered in the Inventory Control Location Details. When the item is created, the Standard Cost is zero. What this method is primarily used for is assigning cost “targets” or gauging performance against industry “standards”. Items are received at the actual cost and are valued using Weighted Average Cost. When the items are shipped, Sage 300 ERP uses the Standard Cost. The difference between Actual and Standard Cost is recorded against the item’s Cost Variance Account.
- Most Recent Cost: Uses the last known unit cost for a particular item. Also, the inventory is valued at the Weighted Moving Average. When items are shipped, Sage 300 ERP calculates the MRC using the most recent unit cost that has been Day Ended. The difference between MRC and Actual cost at time of shipment is recorded to the Cost Variance Account. MRC is similar to LIFO except that separate buckets aren’t recorded. In addition, just as with Standard Costing, users define the MRC for an item in Inventory Location Details.
- User Specified Costing: Used for non-stock items but can be used for stock items too. With User Specified Costing, you can enter unit costs as items are shipped. If you are using this costing method, you must define the cost on every transaction.
- Negative Inventory: When a shipment causes an inventory quantity to fall below zero, Sage 300 ERP will calculate the unit cost using the item’s Most Recent Cost. This can be seen in the Item Location Details.
Have any questions about Inventory Costing Methods? Sound off in the comments!
