Different Costing Methods

Learn how you can accurately manage product costs using Average Cost, FIFO and lot costing methods, and how to track landed costs within the system.


0:00-0:20 Blue Link ERP software offers multiple methods of costing for inventory. The first thing is that you get to choose between the accounting costing methods of first in-first out or FIFO and average cost.

0:20-0:40 Either way, you also have the option for lot tracked items of using specific lot costing where the actual custom each individual lot is used for your accounting postings and for  your sales and gross margin historical reporting or alternatively, to use the established or chosen method of a either average or first in-first out.

0:40-1:00 The thing that's interesting to note is that irrespective of what costing method you select to use for your accounting postings and your sales and gross margin reporting behind the scenes at the subledger level, grueling continues to track all of those costs for each appropriate product or inventory item.

1:00-1:30 On this screen, we can see the average cost of this particular product, which is it looks like it's $15.36 plus a number of decimal places. You could also just as a memo number shows you the last cost and then we also track the first in-first out costs, which we can access simply by clicking on the view purchases and seeing the purchases tab. In this case, what we're doing is we're seeing each of the first in first out or FIFO layers, the most recent acquisition at the top working backwards, so we can see the remaining quantity per first in-first out layer.

1:30-1:50 Now you'll notice that the remaining quantity on this layer that I'm pointing to now is zero, even though it's not the last one and that's because on this particular product we have lot specific tracking turned on. So the lot number that was actually purchased and it was sold gets depleted irrespective of where it is in first in-first out.

1:55-2:10 With a different product such as this one, though, you will notice that the first in first half layers at the bottom i.e. The oldest ones are the ones that have been depleted and the system is in fast depleting these on a first in-first out basis as this is not a lot tract or lot costed item.

2:10-2:40 Now taking a look at a different product, whichever costing method you select first in-first out, average cost and whether or not you turn on lot costing, you have the option of adding on landed costs to the supplier cost and also take into account exchange rates for foreign currency amounts in order to arrive at a true landed cost that includes the additional things that you pay to bring the inventory into your warehousing in a saleable state.These were typically include things like freight, duty, brokerage, possibly insurance, perhaps storage and other incidental costs.

2:40-3:15 Now taking a look at the top line, the highlighted line which is the most recent first in-first out layer of this product we pay the supplier $12 per unit. However, it came in at the landed cost of $16.44 and the difference which is $4.44 is made up of what we call landed cost accruals for brokerage or $0.15 per unit, rate of $3.57 and $0.72 worth of duty. There is a full audit trail, obviously, of how these were added to the costs.

3:15-3:30 The Blue Link landed cost tracking model allows you to also reconcile the invoices that you ultimately received from carriers and from brokers etc, as well as the supplier’s invoices against the so-called accruals that were set up at the point in which you received the purchase order.

3:30-3:58 So summing up, with Blue link you have the ability to cast your inventory in multiple different methods from an accounting point of view and from the reporting POV you'll pick a particular method or particular strategy. You will also be able to bake in your landed costs and you do have the option at anytime in the future if things change to change your costing method because behind the scenes we are tracking all of them.