Inventory Costs Calculations | Inventory Control Overview
There are several things to consider when looking at inventory costs. The first is, what is the normal price you expect to pay for the item versus what have you actually paid for the items. These two are similar but quite different. In very simple systems, you enter one cost price and that's it. If only it were so easy.
The price you expect to pay is stored with the main inventory record. In addition to the raw inventory cost, you can also add frieght, duty or other charges such as insurance. These numbers are added together to give you your landed cost at your door step. When pricing goods for resale, it's important to know the landed costs with all the hidden charges included.
To add to complexity, if you normally buy the item(s) from a different country, you can enter the cost in that foreign currency such as German Marks or Japanese Yen. In the system setup, you can change the currency conversion factors as often as needed, even daily. Then, when you view an inventory item you'll see the foreign cost you need to pay and then the real cost in Dollars.
If you can buy the same item from different suppliers, you can enter the Alternate Supplier information including the cost from each. Before you purchase from a different supplier, you'll be able to view their cost that was charged the last time you purchased from them.
On your actual costs, once you land the inventory at your doorstep and add the items into inventory, the system will create a record showing the actual cost in Dollars, not the foreign currency. This is the cost that will be used when costing invoices as they are entered into the system. The inventory is removed on a first in, first out basis, which is the most accurate.
When you print an inventory report, you'll be able to view your actual cost based on a wieghted average of what is actually left in stock. So even though the system is costing on a first in, first out basis, the inventory remaining on hand is properly calculated for report and inventory valuation purposes.
The exception to costing on a first in, first out method is when dealing with serial numbers. Each serial number is stored with it's own unique cost and that is what's used on the invoices. |
