FIFO inventory valuation impact on finances

[Govind_Sharma]

Hi,

We are planning to maintain inventory valuation on FIFO basis.

As per process steps we have to perform following steps to determine FIFO per unit cost.

• Material Cost Accumulation - You perform cost accumulation runs to collect the costs of the materials you procured or purchased during a given period. The costs are collected for each material by business residence. The run results provide a detailed cost breakdown.
• FIFO Cost Determination - You perform FIFO cost determination runs to calculate the FIFO cost of your materials. The system determines the FIFO cost based on the inventory on hand and on the results of the cost accumulation run.
• Update Inventory Costs - Here you create runs that overwrite the inventory cost with the cost type Estimated Cost, Book Value, or Periodic FIFO Cost for the selected materials.

As per help document - Cost Types for Inventory Valuation

Cost types enable you to assign different costs to a material for different purposes.

The following cost types for materials are available:

• Inventory cost

  Values inventories and goods movements.

• Estimated cost

  Can be calculated in material cost estimates or maintained manually. This cost type is for informational purposes only.

• Planned cost

  Intended for internal planning of anticipated future material costs. This cost type is for informational purposes only.

• Book value

  Book value is based on legal requirements and may be calculated externally by applying a cost flow assumption such as LIFO. This cost type is for informational purposes only.

• Periodic FIFO costCalculated based on the First-In, First-Out method. This cost type is for informational purposes only.

I would like to understand the meaning of "cost type is for informational purposes only".

Also, i like to know where i can locate the change of unit cost of material and impact on financial statements.

Thanks

Govind Sharma

[parveen_kumar6]

Hello Govind

The Inventory Cost will be used for all the transactions pertaining to the material. The Cost Type such as Estimated cost are just for calculation and will not be used in any financial postings. For e.g. after the cost estimation, you find that the Estimated cost is more appropriate than the current inventory cost.You could update the inventory cost from either of these cost type using the run.

Hence the cost types which are just meant for the information purpose and will not be used in financial postings. You use these cost types to derive the appropriate cost for the material and you might later update it to inventory cost.

Regarding the impact, there are two types of documents which are generated whenever you change the inventory manually or automatically.

1. Automatic Change of Material Cost

2. Manual Change of Material Cost

Thanks

Parveen