Inventory valuation is the process of assigning a financial value to on-hand inventory.
In IFS Application this could be done based on four different standard principals.
The valuation method could also be combined with different cost levels to get a more accurate inventory value. There are five different cost levels.
The method and cost level used is determined by a requirement to meet legal or other standards specified by a third party, or by an operational measure found to be useful in analyzing inventory levels.
The matrix below is describing the allowed combinations for inventory valuation methods and cost levels.
|
Inventory Valuation Method Cost Level |
Standard Cost | Weighted Average | FIFO | LIFO |
| Cost per Part | X | X | X | X |
| Cost per Configuration | X | X | ||
| Cost per Condition | X | X | ||
| Cost per Lot/Batch | X | X | ||
| Cost per Serial | X |
Note: Due to technical reasons, the inventory valuation method is automatically set to standard cost when the cost level Cost per Serial is used. It is however somewhat misleading to say that we are using any of the standard principals for inventory valuation when cost per serial is used, since every individual part will have a unique value.
The inventory value will use a fixed value that is calculated or estimated based on expected costs. For management control purposes, the standards are compared to actual costs, and variances are computed and posted.
For new parts, you could set the standard cost by:
When a standard cost is settled, it could only be modified by using specific functions. Modifying a standard cost will result in revaluation transactions for the parts in stock. If IFS/Costing is installed, an update of the standard cost must be triggered from there. If IFS/Costing is not installed, the standard cost could be changed by updating the estimated material cost on the inventory part record.
A fixed standard cost will be used per each unique configuration.
The standard cost for a new configuration could be calculated using an Interim Order, a DOP Order or a Shop Order and then saved as a standard cost for a specific configuration. This standard cost will then be used on following transactions for the specific configuration.
The standard cost for a specific configuration could be modified by using the same function as described above. When the standard cost is calculated and saved, the standard cost will be updated. All parts in stock with that configuration will then be revaluated.
A fixed standard cost will be used per condition code.
The first receipt of a new condition will set the standard cost for that condition. If the part is purchased, the purchase order price will be used as a base for the standard cost, if the part is manufactured, the WIP built up on the shop order will be used to calculate a standard cost and if the part is directly received into stock without an order connection, you must manually define the standard cost for that specific condition. Following issue and receipt transactions of that condition will use the already defined standard cost.
The standard cost for a specific condition code could be modified using the Modify Level Cost Details function on the inventory part record. All parts in stock with that condition will then be revaluated.
If all parts of a specific condition code has been issued, the standard cost for that condition is reset, so the next receipt will set a new standard cost for the condition.
A fixed standard cost will be used per lot batch number.
The first receipt of a new lot batch number will set the standard cost for that lot. If the part is purchased, the purchase order price will be used as a base for the standard cost, if the part is manufactured, the WIP built up on the shop order will be used to calculate a standard cost and if the part is directly received into stock without an order connection, you must manually define the standard cost for that specific lot batch number. Following issue and receipt transactions of that lot batch will use the already defined standard cost.
The standard cost for a specific lot batch could be modified using the Modify Level Cost Details function on the inventory part record. All parts in stock with that lot batch number will then be revaluated.
If all parts of a specific lot batch number has been issued, the standard cost for that lot batch number is reset, so the next receipt will set a new standard cost for the lot batch number.
Each individual will have a separate cost.
The part must be serial tracked at receipt and issue as well as in inventory. If the part is serial tracked at receipt and issue only, then cost per serial cannot be used as the cost level.
The cost is set at receipt of the serial number. If the part is purchased, the purchase order price will be used as a base for the cost, if the part is manufactured, the WIP built up on the shop order will be used to calculate a cost and if the part is directly received into stock without an order connection, you must manually define the cost for that specific serial number.
Note that if the part is manufactured, an actual cost for the shop order will be calculated and applied on existing transactions through a cascade update when the shop order closes. This function is described separately in About Cascade Update of Costs on Inventory Transactions.
The cost for a specific serial number could be modified using the Modify Level Cost Details function on the inventory part record. The cost of that serial number will then be revaluated.
Note when the cost level is set to cost per serial, the inventory valuation method is automatically set to standard cost due to technical reasons. From a valuation point of view, you cannot say that we are using any of the standard valuation principals, since every serial number has a unique value.
The inventory value will be based on the stored average inventory value for the specific part number.
The inventory value will be recalculated at every new receipt, based on the quantities and value of the parts in stock before the receipt and the received quantity and value.
New WA =
(Old WA * Quantity in Stock) + (Receipt Cost * Received Quantity)
(Quantity in Stock + Received Quantity)
If the part is purchased, the purchase order price will be used as a base for the receipt cost, if the part is manufactured, the actual WIP built up on the shop order will be used to calculate a receipt cost and if the part is directly received into stock without an order connection, you must manually define the cost for that specific receipt.
Note that if the part is manufactured, an actual cost for the shop order will be calculated and applied on existing transactions through a cascade update when the shop order closes. This function is described separately in About Cascade Update of Costs on Inventory Transactions.
All issues transactions are using the weighted average value.
The inventory value will be based on the average inventory value for the specific part number and configuration.
The inventory value for a specific configuration will be recalculated at every new receipt of that configuration id using the same formula as for the cost level cost per part, but also considering configuration id's.
The inventory value will be based on the average inventory value for the specific part number and condition code.
The inventory value for a specific condition code will be recalculated at every new receipt of that condition using the same formula as for the cost level cost per part, but also considering condition codes.
The weighted average value for a specific condition code could be modified using the Modify Level Cost Details function on the inventory part record. All parts in stock with that condition will then be revaluated.
The inventory value will be based on the average inventory value for the specific part number and lot batch number.
The inventory value for a specific lot batch number will be recalculated at every new receipt of that lot batch number using the same formula as for the cost level cost per part, but also considering lot batch numbers.
The weighted average value for a specific lot could be modified using the Modify Level Cost Details function on the inventory part record. All parts in stock with that lot batch number will then be revaluated.
The FIFO method assumes that the first-acquired inventories (first in) is the first to be used/issued (first out) and later-acquired inventories are being held for future use. This is an assumption made for the inventory values, and there is no necessary relationship with the physical movement of specific items.
Each new receipt transaction is stored in a FIFO pile and when issues are registered, quantities from the oldest record in the pile will be consumed.
The cost for a specific record in the FIFO pile is set at receipt. If the part is purchased, the purchase order price will be set as cost, if the part is manufactured, the WIP built up on the shop order will be used to calculate a cost and if the part is directly received into stock without an order connection, you must manually define the cost for that specific FIFO record.
The LIFO method assumes that the most recently acquired inventories (last in) is the first to be used/issued (first out) and previously acquired inventories are being held for future use. This is an assumption made for the inventory values, and there is no necessary relationship with the physical movement of specific items.
Each new receipt transaction is stored in a LIFO pile and when issues are registered, quantities from the newest record in the pile will be consumed.
The cost for a specific record in the LIFO pile is set at receipt. If the part is purchased, the purchase order price will be set as cost, if the part is manufactured, the WIP built up on the shop order will be used to calculate a cost and if the part is directly received into stock without an order connection, you must manually define the cost for that specific LIFO record.
When using weighted average or standard cost and cost per serial for manufactured parts, the receipt value will be recalculated when the shop order closes using the actual costs reported on the shop order. This process is described in detail in the document About Cascade Update of Costs on Inventory Transactions.
When using weighted average or standard cost and cost per serial for purchased parts, it is possible to also consider the invoiced price for the unit cost of the part. This process is described in detail in the document About Cascade Update of Costs on Inventory Transactions.
It is also possible to distribute purchase and manufacturing variances to the unit cost on a periodical basis. This process is described in detail in the document About Periodic Weighted Average.
The Zero Cost flag could only be set to zero cost only if the inventory valuation method is set to standard cost. When zero cost only is used, all transactions will use a zero value.
Inventory valuation methods and cost levels could always be changed when there are no on hand quantity or quantity as customer consignment for the part. Changing the valuation method from standard cost to weighted average and vice versa are however always allowed, provided that you are using the same cost level.
Supplier consignment stock could only be used if the inventory valuation method is set to standard cost, independent of the cost level.
Customer consignment stock could only be used for a part if the inventory valuation method is set to standard cost or weighted average and only if the cost level is set to cost per part.