How is Average Cost and Item Value Calculated?
Cost handling in InventoryControl is designed to show you the average cost and current value of your inventory. You can use this cost information for other purposes as well, such as determining pre-tax and purchase order totals and receiving totals.
How do I determine my Stocking Unit 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 on the New or Edit Item screen’s Additional tab (shown below).
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 chapter.
TIP: As there is limited space on the reports and screens, we suggest you always put in an abbreviation for the Stocking Unit.
Figure 36
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 box.
If you remove fractional quantities of an item, the cost should still be for one whole stocking unit. Lets use rope for 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 twelve cents. Continuing the rope example, assume that exact multiples of feet are rarely sold. Should the stocking unit be changed to inches since that is the lowest unit measured? In this case it is up to you to determine which Stocking Unit you use. Since InventoryControl 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. Whichever Stocking Unit you choose, the cost should be entered for one whole Stocking Unit.
How is Cost Handled when I Add Items?
When items are added, they are assigned a cost for each 1 unit. If you add 20 scanners in the Add window, the cost will automatically default to the Item Cost (the cost entered on the New or Edit Item screen). In our example the cost would be $300.
Figure 37
Figure 38
If your cost for this add is different from the cost on the item record, you can change this cost on the Add screen to represent the actual cost.
For example, if you purchased these 20 scanners for a discount, change the Cost on the Add window before you add the items. In this example the user received a $50 discount on the whole order for ordering 20 scanners so the Cost entered on the Add screen should be $297.50.
20 Scanners * $300 = $6000 - $50 = $5950 / 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 correct.
Cost for Order Units per Supplier In the Professional and
Enterprise version of InventoryControl you are able to specify multiple Order Units per Supplier 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 down into the different units.
TIPS: 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 Lists on the Main Window, picking Item. On the Item List, select the item you want to change and then click the Edit button. 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 informational purposes only. These fields are not used on any reports.
If I order my Barcode Laser Scanners in boxes of 20 but my stocking unit is each, I need to specify the cost of a box of 20 when I create the Order Unit Settings on the Create New or Edit Item screen, Suppliers tab, as shown in the graphic.
When the item is received, InventoryControl will do the math and put in the cost per item received. $3500 / 20 = $175 per Barcode Laser Scanner
Average Cost
Average Cost is calculated based on the costs of each of the items that are still in inventory.
InventoryControl uses First In First Out (FIFO) to determine which items to remove from inventory. 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 17thyou remove 60 scanners, all of the scanners that came in on the 1stand 10 scanners from the 8thwould be removed because the scanners on the 1stwhere first in and therefore first out. Next to be removed would be scanners from the 8th.
This also is how the average cost is calculated. If the scanners on the 1stcost
$300 each and the scanners on the 8thand 15thcost $320 and $315 each, the average cost on the 16thwould be $311.67.
50 Scanners * $300 = $15,000 (from the 1st) 50 Scanners * $320 = $16,000 (from the 8th) 50 Scanners * $315 = $15,750 (from the 15th)
---$46,500 / 150 = $311.67 average cost On the 17thyou removed 60 scanners so the average cost will become:
40 Scanners * $320 = $12,800 (from the 8th) 50 Scanners * $315 = $15,750 (from the 15th)
---$28,550 / 90 = $317.23 average cost
Inventory valuation is calculated by multiplying the quantity by the average price.
The inventory value on the 16this $46,500 or 150 * 311.67. After 60 are removed the inventory value is $28,550 or 317.23 * 90.
Zero Cost Inventory
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 * $300 = $15,000 (from the 1st) 50 Scanners * $320 = $16,000 (from the 8th) 1 Scanner was found and added to inventory at $0 50 Scanners * $315 = $15,750 (from the 15th)
---$46,750 / 150 = $311.67 average cost
The average cost is not $309.60 if 46,750 was divided by 151. Since there is no way to edit the cost of an add or receive after it is processed, we must ignore $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 could add them at
$0.01 and 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 to inventory 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 will not be known.
Inventory valuation includes the zero cost items when it calculates. The valuation is the number of units times the average price.
$311.67 * 151 Scanners = $47,062.17 Receiving against a Purchase Order
If you have the Pro or Enterprise version, you can create a purchase order (PO) and receive against that PO. When you do this the Stocking Units cost is calculated from the cost that is on the PO. Please refer to i for more information on using purchase orders.
Adding and Receiving on the Mobile Devices
All stock added from a mobile device is added at the item cost (from the Edit Item screen) at the time of the transaction.
If you need the cost to be correct for each add transaction, you can edit each add transaction on the PC before it is processed and change the price. You can edit these amounts from the Pending Uploads wizard (Main Window > Mobility >
WDT2200 or Windows Mobile/CE > Process Mobile). This wizard also automatically appears each time you transfer data from the mobile device to the PC.
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 Enterprise or Pro version, and the inventory is received against a PO on the handheld, the item cost will be calculated from the cost on the PO. If the final cost is different from what was put in the PO you can edit the handheld transactions in the same way as described above.
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 we suggest you use the average cost number to start with.
In Step 3: Transactions screen of the wizard, select the transaction for which you want to change the cost, then click Edit.
Enter the new Cost and click the OK button.
Figure 40