FIFO costing

Finance and Operations/AX User Forum
1

Dear costing guru’s

I have some examples I am trying to create in AX V4 for FIFO costing to understand how AX gets to the cost price figure but it doesn’t make any sense to me. For example, I have create an item from scratch, with FIFO and standard dimension group (which has WH only active, with physical and financial inventory turned ON).

  • I create a PO for 10 @ 20.00 and invoice update this. on 3/9/08
  • I create another PO for 10 @ 30.00 and invoice update this on 5/9/08
  • I create a sales order for 1 @ 40.00 and invoice update this on 8/9/08

When I go to the inventory on hand screen it shows me a cost price of $25.00 and a financial cost of $475.00 because it is reducing it by the avg cost price of $25.00. This is the average cost but since we are using FIFO costing shouldnt this be taking the first value in inventory which is $20.00?

I dont have to run an inventory close to see the adjustment back to $20.00 do I? I thought AX was able to illustrate the cost price without running a close?

Can someone please help me understand what is going on here.

2

The Cost Price on On-hand screen is the estimated actual cost price, which is average = Financial Cost Amount / Posted Quantity. The Financial Cost amount is your financial amount which have been posted.

If you check the inventory transaction of the sales order, it shows 1*25 = $ 25 as the COGS.

You can run “Recalculation” to adjust the cost price of your sales order.

Check your on-hand screen, the Financial cost amount now is 480. And the estimated cost price is now 480/19 = 25.26.

I think this is normal with companies which are running actual cost. You can only get the actual settlements when you run inventory close each month end.

Hope this help

3

HI Khue,

Thank you for your reply. It makes sense to me but still doesnt explain how I get the actual or accurate cost price if I am using a particular costing method such as FIFO. Why does the inventory transaction of the slaes order show $25.00 as the COGS? Is this because it is taking the average cost price of the item from the inventory - on hand screen which shows the cost price as $25.00?

I ran a recalculation as of 8/9/08 and seems like nothing has changed. My cost price of my sales order is still at $25.00 and my financial cost amount from my on hand screen is at $475 as it was before. Estimated cost price is still at $25.00.

Any ideas why nothing changed?

So if I were using this costing method does that mean I need to run a recalc to get the correct/accurate cost price for an item? surely AX should illustrate this cost price somehow without having to run a close or recalc everytime?

Isnt there another form which can show me the true value of the item after a particular costing method is used?

THanks for your help

Regards

Sahar Saqeb

4

Hi Sahar,

As far as I know, this is how AX works. Actual cost is only correct when you close the stock and recalculate, that’s why I mentioned it as ESTIMATED COST PRICE :slight_smile: . And… I think you can only get the correct cost price and cost of inventory transaction at month end when you use actual costing method.

Thanks…