Costing Methods Reference List

Use the chart in this topic as a quick reference when you add account sets, or when you assign account sets to items.

For more detailed information about each of the costing methods available in Inventory Control, see the following topics:

Costing Methods
Costing Method	Description
Moving average	The unit cost is an average of the costs of all units in a location's pool at any one time. When you receive new items into inventory, the program adds the total cost of the units received to the total cost of the items already in inventory at that location, then divides the total cost by the units on hand at the location, and rounds the result to the nearest currency unit to obtain the new unit cost. To determine the total cost of a shipped item, Inventory Control multiplies the number of units shipped by the calculated average unit cost at the location (or the most recent cost if the inventory is less than zero).
Standard cost	Standard costs are target or attainable costs you determine for building budgets and gauging performance. Under the standard costing method, actual costs are posted to inventory upon receipt. The inventory is then valued and reported on the basis of the weighted moving average cost for each item at a location. When you ship goods, the cost of goods sold is calculated using each shipped item's standard cost. Inventory Control records the difference between the weighted moving average cost and the standard cost in the general ledger cost variance general ledger account, and uses weighted moving average to value your inventory. If you ship units of an item for which you have not yet entered a standard cost, Inventory Control calculates the cost of goods sold using a standard cost of zero.
First-in, first-out (FIFO)	Under the FIFO (First-In, First-Out) method of cost calculation, Inventory Control assumes that the first units to arrive at a location are the first units shipped. Consequently, the units on hand in the closing inventory are assumed to be from the most recent purchases. As a result, current revenues are matched to oldest costs.
Last-in, first-out (LIFO)	Under the LIFO (Last-In, First-Out) method of cost calculation, the program assumes that the last units to arrive at a location are the first ones shipped. Consequently, the units on hand in the closing inventory are assumed to be from the oldest purchases.
Most recent cost	When you ship units from a location using this costing method, Inventory Control assigns the cost of the most recently acquired unit at the location to all units shipped. Consequently, the units on hand in the closing inventory are assumed to be from the oldest acquisitions. The program uses weighted moving average to value inventory when the costing method is most recent cost. To determine the total cost of a shipment, the program multiplies the number of shipped units by their most recent cost at the location. The program records the difference between the most recent cost and the average cost in the general ledger cost variance account of the category being used for the shipment. (The average cost is the total cost of units on hand divided by the total number of units on hand.) Warning! If you ship units of an item for which you have not yet received any stock or entered a most recent cost, Inventory Control calculates the cost of goods sold using a most recent cost of zero.
User-specified	User-specified costing allows you to enter costs for items as they are shipped. Inventory Control uses this costing method for all non-stock items. You can also use it for stock items. Under this costing method, stock items are received and inventory valued at moving average cost. When you ship an item, you enter the unit cost or extended cost. You can specify items as bills of material components (for example, non-stock items). You can specify the cost for the item when setting up a bill of material or during assembly of the master item.
Serial	The Serial costing method is available only if you have a license to use Serialized Inventory and Lot Tracking. Under this costing method, Inventory Control calculates a cost for each serial number. The program computes the average cost, including additional costs, for serialized items when you receive them. It uses specific cost calculated for the serial number when you sell a serialized item.
Lot	The Lot costing method is available only if you have a license to use Serialized Inventory and Lot Tracking. Under this costing method, Inventory Control computes the cost of an entire lot, including additional costs, when you receive the lot. When you ship items from the lot, the cost of the lot is prorated for the lotted items sold.