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Inventory Unit Costs

Accurately track and manage the costs of your inventory items using various costing methods.

Overview

Inventory Unit Costs help you maintain accurate cost tracking for inventory items, ensuring proper valuation and cost of goods sold calculations.

Proper cost management is crucial for accurate financial reporting, pricing decisions, and profitability analysis across your entire inventory portfolio.

Costing Methods

Accounter supports several inventory costing methods to match your accounting requirements:

  • Average cost - Calculates the weighted average cost of all inventory units
  • FIFO (First In, First Out) - Uses the cost of the oldest inventory first
  • LIFO (Last In, First Out) - Uses the cost of the newest inventory first
  • Specific identification - Tracks the actual cost of each individual item
  • Standard cost - Uses predetermined costs based on estimates
  • Moving average - Updates average cost with each purchase

Note

Choose a costing method that aligns with your accounting standards and business requirements. FIFO is most commonly used and often required for regulatory compliance.

Setting Unit Costs

To configure and manage inventory unit costs:

  1. Navigate to Settings → Inventory Unit Costs
  2. Select the inventory item you want to configure
  3. Choose the appropriate costing method for the item
  4. Enter or adjust unit costs based on purchase history
  5. Set cost adjustment dates for historical accuracy
  6. Review the impact on inventory valuation
  7. Save the cost information and monitor changes

Warning

Cost adjustments can significantly impact your financial reports and inventory valuations. Always review the impact on profit margins and financial statements before making changes.

Cost Configuration Options

When setting up inventory unit costs, you can configure:

SettingDescription
Costing MethodThe method used to calculate inventory costs
Base Unit CostThe cost per unit for the inventory item
Cost AdjustmentsHistorical cost changes and their effective dates
CurrencyThe currency in which costs are tracked
Cost ComponentsAdditional costs like shipping, handling, or overhead
Revaluation SettingsHow and when inventory is revalued

Cost Management

Effective inventory cost management includes:

  • Regular cost reviews - Periodic assessment of cost accuracy and relevance
  • Cost adjustment tracking - Monitor all changes to unit costs over time
  • Variance analysis - Compare actual costs against standard or expected costs
  • Cost reporting - Generate reports showing cost trends and impacts
  • Purchase price variance - Track differences between expected and actual purchase costs
  • Obsolescence provisions - Account for declining value of slow-moving inventory

Cost Calculation Examples

Understanding how different costing methods affect inventory valuation:

Example Scenario:

Product A purchases:

  • Jan 1: 100 units at $10 each
  • Feb 1: 100 units at $12 each
  • Mar 1: Sale of 50 units

FIFO Cost: 50 units × $10 = $500
Average Cost: 50 units × $11 = $550
LIFO Cost: 50 units × $12 = $600

Best Practices

  • Choose appropriate costing method - Select method that aligns with business and regulatory requirements
  • Regular cost updates - Keep unit costs current with market conditions
  • Document cost changes - Maintain clear records of all cost adjustments and reasons
  • Monitor cost trends - Track cost movements to identify inflation or deflation patterns
  • Maintain cost accuracy - Ensure costs reflect true acquisition and carrying costs
  • Consider total cost of ownership - Include all relevant costs, not just purchase price
  • Implement approval workflows - Require authorization for significant cost changes
  • Regular audits - Periodically verify cost accuracy through physical counts and reconciliations

Pro Tip

Schedule regular cost reviews to ensure your inventory valuations remain accurate and reflect current market conditions. This helps maintain reliable financial reporting and pricing decisions.
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