Two of the most common questions we get from our manufacturers and distributors are "Can your software handle 'x' costing methods?" and "Which costing method is best?" The answer to the first is a long answer-- we need to know more based on your business! The latter question is however you need to cost your inventory, the software can do it; Standard, FIFO, Average, or Specific cost.
Clients First has published several blog articles and a couple of whitepapers due to the popularity of this topic. Acumatica Cloud ERP just published a new comprehensive whitepaper: Principles of Inventory Valuation and Manufacturing Costing for Inventory-Centric Businesses. This whitepaper covers the gamut for all valuation methods including examples and comparisons. This whitepaper will come in handy for our sales team, prospects, and even existing customers.
Topics Included Cover the Inventory Costing Gamut
- Inventory Valuation and Production Cost Considerations For Wholesale Distributors and Manufacturers, includes Cost elements
- Fundamentals of Inventory Valuation and Manufacturing Costing
- Detailed Valuation Descriptions
- Inventory Valuation Examples
- Valuation Comparisons
- How to Select the Right Options for Your Industry
Partial Excerpt from the Whitepaper
"HOW TO SELECT THE RIGHT OPTIONS FOR YOUR INDUSTRY
Cost accountants and accredited CPA firms prove best suited to evaluate inventory valuation and
manufacturing cost options. However, below are a few general considerations that may help you
choose the best inventory valuation and manufacturing costing strategies for your industry and
unique business needs.
Companies that distribute durable goods with stable costs are more likely to implement average or FIFO inventory valuation. On the other hand, companies that distribute perishable or nondurable goods often select specific valuation strategies—especially if the products are lot tracked or when they experience a notable change in the price or cost of the item throughout the year.
MAKE-TO-ORDER MANUFACTURERS (MTO)
Engineer-to-order, configure-to-order, assemble-to-order, and job shops are more likely to choose specific inventory valuation and estimated manufacturing costs, because they probably will not make the same product again. Manufacturers are challenged to capture actual production costs that are often recorded after the fact, because production moves so fast. Further, many components and raw materials used in make-to-order environments are tracked by lot or serial number. However, plenty of make-to-order manufacturers use alternative cost strategies.
MAKE-TO-STOCK MANUFACTURERS (MTS)
Make-to-stock (MTS) and repetitive manufacturers who produce the same products continuously are likely to use standard costing, because production costs are easier to predict. They also commonly use FIFO costing and average costing. Actual costing is less popular except when products are tracked by lot or serial number.
The raw materials and finished goods you distribute or produce may indicate which inventory valuation methods your company should consider. For example, companies in nondurable goods and process manufacturing industries such as chemicals, oil, food, beverage, pharmaceuticals, and metals are more likely to use specific and FIFO valuation. Conversely, companies that distribute or manufacture durable goods or discrete products such as electronics, industrial equipment and machinery, or plastic products are more likely to use standard, average, or specific valuation methods. As mentioned previously, the best person to make this determination is your cost accountant or trusted CPA."
That was just a PORTION of the information in this whitepaper. I would download it now to learn more!