Get Your ERP Costing Methods InOrder

May 8th, 2018
By Cheryl Reinertsen

Costing methods might not be the most exciting topics in the warehouse, but they are very important to your ERP system because they determine the value of inventory. InOrder supports four inventory costing methods: FIFO, LIFO, Average, and Standard.

This allows InOrder to determine the costing method of your inventory, storing the current and future costs for each inventory item.

While each method may result in profit and tax implications that must be carefully considered, here is a glance at each costing method that is used with InOrder. (Note that vendor costs from purchase orders are used as unit costs.)

The FIFO costing method means “First-In, First-Out.” FIFO costing supports unlimited cost buckets per SKU per storage facility per hold code. With this method, the oldest items are used first, and the oldest unit cost is used when allocating stock. This costing method is common for perishable items, or for items that quickly change styles or quickly become obsolete.

The LIFO costing method means “Last-In, First-Out.” LIFO costing supports unlimited cost buckets per SKU per storage facility per hold code. With this method, the newest items are used first (which may result in aging stock), and the newest unit cost is used when allocating stock. This method may be useful for business that sell items that do not expire or become obsolete (such as gravel).

The Average costing method calculates the value of inventory based on the average purchase cost of all inventory. With this method, the average cost is used when allocating stock. Average costing stores averages by SKU by storage facility by hold code. Re-averaging occurs whenever new inventory is received. If rounding occurred during re-averaging, an inventory cost adjustment transaction is generated to recording the rounding error. While this method is inexpensive to maintain, it also means that expensive items are sold for the same price as less expensive items. This method may be useful for a business that sells items with similar prices.

Standard costs are used as a close approximation to actual costs, which may be useful when it is too time-consuming to collect actual costs. With this method, InOrder uses the current unit cost when allocating stock.

InOrder also allows you to suppress costs to use $0 when allocating stock.