About Posting - LIFO and FIFO Cost Methods

Posting of Costs At Receipt for LIFO and FIFO Cost Items

The system processes that receive an item into inventory are the following:

• Purchase order receiving
• Job receipt
• Job transactions posting
• Job material withdrawal
• Customer order return
• Stock adjustment
• Cycle count posting
• Miscellaneous receipt
• Physical inventory posting

Item LIFO File

For LIFO and FIFO costing, the system maintains a stack of all of the receipts for an item in the Item LIFO file.

Each time an item is received into stock from a purchase, job, or miscellaneous receipt, an Item LIFO record is created that contains the following information:

• Item number
• Receipt date
• Receipt time
• Quantity received
• Receipt cost (cost details for manufactured items - material cost, labor cost, fixed overhead cost, variable overhead cost, and outside cost)
• G/L account number

If LIFO is used, the receipt cost is posted to the Item Costs form and displayed (view only) in the Items form's (Standard) Unit Cost field. The Unit Cost field displays the next cost at which to issue the item.

If FIFO is used, the receipt cost is posted to the Item Costs form and displayed (view only) in the Items form's (Standard) Unit Cost field. The Unit Cost field displays the cost of the oldest Item LIFO record on file for the item.

Each time an item is received into stock from a customer order return, a stock adjustment, through cycle count posting, physical inventory posting, or from a material withdrawal, the quantity received is added to the quantity currently in the last record of the Item LIFO file.

NOTE: The current LIFO/FIFO information on file for each item displays on the Item LIFO/FIFO Summary and Item LIFO/FIFO Detail reports.

The Receipt Cost posted to the Item LIFO record varies depending on the transaction being posted:

• For the purchase order receiving transaction, as a default the receipt cost posted is the Purchase Order Lines unit cost.
• When an item is received through Purchase Order Receiving, the Receipt Cost default value comes from the Purchase Order Lines unit cost.
• When a Miscellaneous Receipt is performed, the Receipt Cost used is entered by a user at the time the transaction is processed.
• When inventory is received from a job, the Receipt Cost used is determined by the Shop Floor Control Parameters form's Costs Based on Complete field, the status of the job and the Complete flag on the job's operations. If the receipt is being performed using a labor transaction on the last operation, you have the option of closing the job order. If the job is closed when the transaction is entered, the receipt cost used is always the actual unit cost of the job.
• If the job is not closed and the Costs Based on Complete parameter is set to "Jobs", the Receipt Cost used is the Planned unit cost of the job. (The Planned unit cost is based on the setup, run times, and the rates from the Current Operations and Current Materials forms.)
• If the job is not closed and the Costs Based on Complete parameter is set to "Operations," the Receipt Cost used is determined by the "Complete" flag of the job's operations.
• Actual costs from completed operations are accumulated while planned costs from incomplete operations are accumulated to determine the final receipt cost.

Ledger Distribution Journals

When an item goes into stock (purchased or manufactured), a new transaction is created in the appropriate Ledger Distribution journal (CO Dist, IC Dist, PO Dist or SF Dist).

• The Receipt Cost used for a PO receiving, job receiving, or miscellaneous receiving transaction is the Receipt Cost described above.
• The Receipt Cost used for a stock adjustment is the last record in the Item LIFO file at the time the transaction is entered. The Receipt Cost used for a customer order return is the average for all shipments against the line item.
• The Receipt Cost used for a job material withdrawal is an average of the actual cost at which the item was issued to the job.

Posting of Costs At Issue for LIFO and FIFO Cost Items

Items are issued out of inventory in the system by processing the following transactions:

• Job material issue
• Customer order shipment
• Purchase order return
• Stock adjustment
• Miscellaneous issue
• Cycle count posting
• Physical inventory posting

The Item Costs and Items forms' (Standard) Unit Cost fields are not accessed when an item is issued from inventory. When an item is issued, the system consumes the quantities and costs in the Item LIFO file for the item until the entire quantity is issued.

Although the Item Costs and Items forms' (Standard) Unit Cost fields display the next cost at which an item is issued, it is possible that several different unit costs are used to arrive at the total issue cost if more than one Item LIFO record needs to be consumed to satisfy the quantity being issued. As the quantities and costs are consumed, the records are deleted from the Item LIFO file. When LIFO or FIFO costing is used, the system does not care from what stock location the items are being issued. It is only concerned with the timing of the receipts.

Related Topics

Costing Overview

About the FIFO Costing Method

About the LIFO Costing Method

LIFO and FIFO Costing Setup