Using Cost Tracking and Average Costing FAQ

InventoryCloud provides four costing options:

Moving Average - When this method is used, the average cost of a particular item is recalculated based on each purchase.

Example: You purchased 100 computers for $500 each. When you have 10 computers left in stock, you purchase 100 more, but now your cost for the computers is $600 each. InventoryCloud will calculate the cost of this item as shown below:

Cost of original computers = 10 x 500 = $5,000
Cost of new computers = 100 x 600 = $60,000
The combined cost of all of the computers is $65,000

Average cost of all of this type of computer that you have in inventory (110 computers) is 65,000 / 110 = 590.91
First-In, First-Out (FIFO) - When this method is used, the inventory that is added first is removed first.

Example: If you added or received 50 Barcode Laser Scanners on the 1st, 8th and 15th, you would end up with 150 scanners. If on the 17th you remove 60 scanners, all of the scanners that came in on the 1st and 10 scanners from the 8th would be removed because the scanners on the 1st were first in and, therefore, will be first out. Next to be removed would be scanners from the 8th.

Keep in mind that there is no "Average Cost" valuation for FIFO. The Average Cost field on the Item List screen will display the cost of the last item in. If you add 50 scanners at $300.00 each on the 1st, and 50 scanners at $315.00 each on the 8th, the Average Cost field will display $315.00. If you remove 50 scanners from your inventory, the Average Cost will remain $315.00 since that was the cost of the last items in.

Inventory valuation is calculated by multiplying the quantity by the average price. The inventory value on the 16th is $46,000 or 150 x $311.67. After 60 are removed the inventory value is $28,550 or $317.23 x 90.
Last-In, First-Out (LIFO) - When this method is used, the inventory that is added last (most recently) is removed first.

Keep in mind that there is no "Average Cost" valuation for LIFO. The Average Cost field on the Item List screen will display the cost of the most recent item still in inventory. If you add 50 scanners at $300.00 each on the 1st, and 50 scanners at $315.00 each on the 8th, the Average Cost field will display $315.00. If you remove 50 scanners from your inventory, the Average Cost will return to $300.00 because the most recently added items (the scanners at $315.00) were removed.

The quantity of an item on all screens and reports is counted using the Stocking Unit you specify or eaches (ea.) if you do not specify a unit. The stocking unit can be entered for each item under the Default Unit in the New or Edit Item screen.

When you enter the stocking unit, you need to pick the smallest unit of measure that you will ever use to remove a whole item. A good test to use when deciding what the stocking unit should be is to ask yourself how you count and refer to one unit. Think about what your answer would be if you were asked to count how many of this item you have. If the answer is 100 feet of rope, for example, "feet" or "ft" is the stocking unit. If the answer is 20 scanners, then "ea" is the stocking unit because "each" is common when the unit itself is not a standard unit of measure. If the answer is 100 boxes of nails, then "box" or "bx" is the stocking unit.

We will address what you do if you remove in partial quantities or purchase the item in larger quantities than the stocking unit later in this topic.

What is the Cost for my item?

When you input cost for an item into the New or Edit Item screen, the cost is your cost for purchasing one of the stocking units. If one barcode laser scanner costs $300 you would enter 300 into the cost field.

If you remove fractional quantities of an item, the cost should still be for one whole stocking unit. Let's use rope as an example. Normally the rope is sold in increments of a foot so the Stocking Unit is ft. Each foot costs $0.12 making the cost 12 cents. Continuing the rope example, assume that exact multiples of feet are rarely sold. In this case you could change the stocking unit to inches since that is the lowest unit of measure. Since InventoryCloud does not do the math for you when determining the quantity you are adding and the cost at add time, you should choose one that makes it easiest for you to add and remove. Regardless of the stocking unit you choose, the cost should be entered for one whole stocking unit.

How is Cost handled when I Add Inventory on the PC?

When inventory is added on the PC, it is assigned a cost for each 1 unit. If you add 20 scanners in the Add screen, the cost will automatically default to the Item Cost (the cost you entered on the New or Edit Item screen > General tab).

If your cost for this add is different from the cost on the item record, you can change the cost on the Add screen to represent the actual cost.

For example, if you purchased 20 scanners for a discount, change the Cost on the Add screen before you add the items. In the example below, the user received a $50.00 discount on the whole order for ordering 20 scanners so the Cost entered on the Add screen should be $297.50.

20 scanners x $300 = $6,000 - $50 = $5,950 / 20 scanners = $297.50 per scanner.

You are still putting the individual scanner price into the Cost field and you must do the math to make sure it is the correct price.

Tips!

Since there is limited space on the reports and screens, we suggest you always put in an abbreviation for the stocking unit.
If you don't enter a cost when you add items or if you put in the wrong cost, there is no way to edit that transaction and change the price after it has been completed.
Changing the cost on the Add screen does not change it on the Edit Items screen. The next time you add Barcode Laser Scanners, for example, the cost will still default to $300. If you want to change the default cost you can change the cost on the Edit Item screen by going to Main Window > Lists > Item. On the Item List, select the item you wan to change and then click the Edit button. You can then edit the cost. This only changes the cost that is shown automatically the next time you add an item
The List Price and Sale Price fields on the Create New Item screen are for information purposes only. These fields are not used on any reports.

What is the Cost for Order Units Per Vendor?

he InventoryCloud will also allows you to specify multiple Order Units per Vendor of an item. When you enter an Order Unit that is different from the Stocking Unit, you are telling the system that you are ordering in one unit but when the items are received they will be broken into the different units.

This feature may only be available with the ‘Complete’ edition. Ask your Wasp representative for details.

For example, if you order your Barcode Laser Scanners in boxes of 5 but your stocking unit is Each, you need to specify the cost of a box of 5 when you create the Order Unit Settings on the Create New or Edit Item screen > Vendors tab, as shown in the image below:

Whereas the basic version will only allow you to add one Order Units per Vendor of an item.

How is Zero Cost Inventory Handled?

If inventory is added or received at $0, that quantity is ignored for average price and valuation purposes. The only way stock gets added at $0 is if you import inventory or specify a $0 cost at add or receive time.

50 scanners x $300 = $15,000 (from the 1st)

50 scanners x $320 = $16,000 (from the 8th)

1 scanner was found and added to inventory at $0

50 scanners x $315 = $15,750 (from the 15th)

-----------

$46,750 / 150 = $311.67 average cost

The average cost is not $309.60 ($46,750 / 151). Since there is no way to edit the cost of an add or receive after it is processed, InventoryCloud ignores the $0 cost adds. If an item is accidentally added at $0 cost the average and valuation would be incorrect until that item is removed through FIFO.

If you do want $0 cost items to be included in the average you can add them at $0.01. Although this would not produce an exact average or valuation, it would have the same effect as averaging in $0 cost items over time.

Inventory that is added using the Adjust screen is added at the average cost for that item at the time of the adjustment. This way the average is not affected since, in most cases, the cost of that item is not known.

Inventory valuation includes the zero cost items when it calculates. The valuation is the number of units times the average price.

$311.67 x 151 scanners = $47,062.17

How is Cost Handled when Receiving against a Purchase Order?

You can create a purchase order (PO) and receive against that PO. When you do this, the stocking unit's cost is calculated from the cost that is on the PO. Please refer to Purchase Order/Receive Overview for more information on using Purchase Orders.

Access to this feature may only be available with the ‘Complete’ edition. Ask your Wasp representative for details.

How is Cost Handled When Adding and Receiving on the Mobile Devices?

If you are adding inventory on a mobile device, the cost will transfer as either the Item Cost or the Average Cost,depending on the selection made on the Options screen.

Keep in mind that there is no way to change the price after the handheld transactions are processed on the PC.

If you have the Complete version of InventoryCloud, then the inventory is received against a PO on the handheld, the item cost is calculated from the cost on the PO. If the final cost is different from what was put on the PO you can edit the handheld transactions as described above.

How is Cost Handled when Importing Inventory?

Inventory does not import with a cost. If you intend to use cost you should manually add your inventory using the Add screen and specify the cost. Usually you can calculate the average cost of your existing inventory and it is recommended that you use the average cost number to start with.