About item costs and valuation methods

If the FIFO valuation method is assigned to a stock item, its unit costs are recorded in layers, each of which is identified by the receipt date, the quantity, and the purchase price (unit cost).

Each new receipt creates a new cost layer with specific unit cost. You can view the cost of the last layer in the Last cost read-only field on the Price/cost information tab of the Stock items (IN202500) window .

When a certain quantity of the stock item is issued, the cost for the item is assigned starting with the earliest available cost layer.

If the quantity to be issued is greater than the quantity in the earliest layer, the entire quantity from the earliest layer will be issued (with the associated unit cost) and the rest of the required quantity will be issued using the next earliest layer (with another unit cost).

Consider assigning the FIFO issue method to actually issue items from the inventory.

This will help your company avoid discarding obsolete items.

A stock item was purchased in the following way:

• Cost layer 1: May 10, 5 units at €8 each
• Cost layer 2: June 10, 5 units at €10 each

The total stock cost is (5 * €8) + (5 * €10) = €90.

Further imagine that for a sales order, 8 items are required.

All units from cost layer 1, and three units from cost layer 2 will be used to complete the transaction, with the extended cost equal to (5 * €8) + (2 * €10) = €60.

For the next sales order, there will be no more items with the €8 unit cost.

The Specific valuation method is used for serialised items (those with lot or serial numbers).

With this method, the unit cost for each item is defined by the unit's purchase price.

The unit cost assigned to the item on its receipt will remain the same until the item is issued, used as a component, or sold.

With the Specific method, cost layers are based on the serial or lot numbers.

New receipts specifying the same serial or lot number will update the cost of the layer. For example, imagine that a stock item was purchased as follows:

• May 19, 100 items starting with the serial number 11023423 at €2.00 each
• May 21, 100 items starting with the serial number 11023523 at €2.10 each
• May 19, 100 items starting with the serial number 11023623 at €1.90 each
• May 19, 100 items starting with the serial number 11023723 at €2.20 each

The total stock cost is €820. When items with the serial numbers 11023666 and 11023444 are sold, the unit costs recorded to the COGS account are €1.90 and €2.00 respectively.

If the Average valuation method (also known as average moving cost) is assigned to the stock item, the unit cost will be calculated as the average weighted cost of all items at the warehouses or the total costs of all quantities of the stock items at the warehouses divided by the total quantity.

This valuation method is used for items that do not require tracking by lot or serial numbers or by expiration dates.

The average cost will be automatically updated every time a new receipt specifying a unit cost different from the current average cost is released.
Once this receipt has been released, a batch of journal entries will be generated to adjust the costs of all available items.
You can view the current average cost in the Average cost read-only field on the Price/cost information tab of the Stock items (IN202500) window .
Imagine that a stock item was purchased as follows:

• Layer 1: 100 items at €2.00 each
• Layer 2: 100 items at €2.10 each
• Layer 3: 100 items at €1.90 each
• Layer 4: 100 items at €2.20 each

The total stock cost is €820, and the average cost is €2.05.
If you sell 250 items, the unit cost is €2.05, and the extended cost recorded to the COGS account is €512.5 = €2.05 * 250.

Standard costs, which are estimated to include some of the indirect and direct costs allocated, for stock items are determined outside of Visma.net ERP by cost experts.
For an stock item with the Standard cost valuation method assigned, the unit cost is entered directly by the user in the Pending cost field on the Price/cost information tab of the Stock items (IN202500) window.

For items with the standard cost valuation method, standard costs can be maintained for each warehouse separately if the Override standard check box, located on the Price/cost information tab of the Item warehouse details (IN204500) window, is selected for the item stocked at a particular warehouse.

The item cost doesn't change as new receipts are released.

A stock item with a standard cost defined at €2.50 was purchased in the following way:

• Layer 1: 100 items at €2.00 each
• Layer 2: 100 items at €1.90 each
• Layer 3: 100 items at €2.30 each
• Layer 4: 100 items at €2.60 each

The total stock cost is €1000. Any differences between the standard cost and the unit cost on receipts multiplied by the quantity on the receipt are recorded to the standard cost variance account: in this case, €50, €60, €30, and –€10 respectively. On sales orders, the unit cost will appear as €2.50.

Generally, standard costs are revised at the end of the financial year based on the financial results of the year, although they can be updated as often as is needed.

If you want to update standard costs for a number of stock items, use the Price/cost information tab of the Stock items (IN202500) or the Non-stock items (IN202000) window.
New values for standard costs are entered as pending standard costs. The pending cost assigned to an stock item that uses the standard cost valuation method becomes effective starting on the Pending date specified on this tab.

If you want to make similar changes to many or all stock items, use the Update standard costs (IN502000) window to enter new values and compare current and pending costs side by side for all stock items. If you are satisfied with the changes, you can update the current standard costs with the pending standard costs for all items or only selected ones by using the Process all or Process action on the window toolbar.

The system doesn't keep a history of the standard costs for the stock items, displaying only the last cost and current cost values on the Price/cost information tab of the Stock items (IN202500) window. The historical costs that were effective before the last cost are not stored in the database.

For items with the Standard cost or Average valuation methods, on inventory issues, unit costs (costs with respect to the base unit) are specified in the Unit cost field in the Issues (IN302000) window.

If an item has the FIFO or Specific valuation method assigned, costs of its units may be different, and the Unit cost field on the window displays the unit cost for the first unit to be issued, in accordance with the stock item's issue method. You can invoke the Allocations dialog box to view particular items to be issued or to select them by lot or serial numbers. The Extended cost value in the Issues (IN302000) window. will automatically appear as the sum of the unit costs of all listed items.