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Valuation and Cost Layers

Every receipt creates a cost layer: this many units, at this cost, on this date. Every issue consumes layers and records the cost it consumed, so the margin on a sale is fixed when the goods leave. How layers are consumed depends on the item's costing method, and a standard-costed item's value can be changed only by a revaluation that posts to the ledger.

Where to find it

Architect Panel → ERP - Operations:

  • Items — each item's costing method and standard cost, and the Cost history tab
  • Stock — the console: Enquiry shows value and average unit cost; Set-up holds the company's default costing method
  • Stock Cost Layers — the layers and what each issue consumed, read only
  • Structures — Cost roll-up, which can also set a new standard

Admin Panel → Inventory & Production:

  • Items — costing method and standard cost
  • Stock — value and average cost by item

The three costing methods

  • FIFO (first in, first out): issues consume the oldest layer first. An issue spanning two layers records both.
  • Moving average: issues are valued at the running average of what is on hand.
  • Standard cost: receipts are valued at the item's standard cost and the difference from the actual price goes to the purchase price variance account; production output goes in at standard and the difference goes to the production variance account.

The method comes from the item; if the item has none, from its item group; and failing that from the company's Default costing method on the Stock console's Set-up tab (FIFO unless changed). The method cannot change while stock is on hand: count the stock out, change it, and count it back in.

Where a cost comes from when none is given

A receipt or a stocktake gain entered without a unit cost is valued at the item's current cost: the standard cost for a standard-costed item, otherwise the average of its layers, then its last receipt, then its standard or rolled-up cost. An item with none of these goes in at zero, and zero-cost opening stock produces spectacular margins until it is used up, so always load realistic costs.

Changing a standard cost

A standard-costed item with stock on hand keeps its standard until that stock is revalued. To change it:

  1. Open Items, open the item and click Edit.
  2. Enter the new Standard cost and tick Revalue stock on hand if it changes.
  3. Click Save changes.

Every open layer is re-priced to the new standard and, where stock posts to the ledger, a revaluation journal is posted: a rise is Dr Inventory / Cr Revaluation, a fall the reverse. The revaluation account is the company's Standard cost revaluation account, or the variance account if that is blank. A group-wide item is revalued in every company that holds it. The save, the revaluation and the journal happen together or not at all. The same can be done from Structures → Cost roll-up with Also make it the item's standard cost and and revalue stock on hand.

Each revaluation is recorded on the Stock Revaluations datastore (old and new standard, quantity, change, journal and reason) and listed under Standard cost revaluations on the Stock vs GL tab.

What goes wrong

  • "Q is on hand at the current standard … Revalue the stock on hand to change it": you changed the standard without ticking the revalue box.
  • "Not revalued - company holds Q of CODE, and you cannot change stock there": someone with access to every company holding the item has to do it.
  • "Not revalued - … no inventory or revaluation/variance account is set" or "… you can change stock but not post journals for this company". Each ends The standard cost was NOT changed.
  • "Costing method … Count it out and back in to change the method.": the method is locked while stock is on hand.

Worked example

A FIFO component is received at 4.10 for 100 units, then at 4.60 for 100. An issue of 150 consumes 100 at 4.10 and 50 at 4.60, so it records 640.00, not 150 × 4.60. The margin on that order is fixed at the moment of issue. Separately, a standard-costed finished item moves from a standard of 22.00 to 23.50 after a cost roll-up; with 80 on hand, ticking the revalue box posts 120.00 to Inventory against the revaluation account in the same save.

Recommendations

  • Choose the costing method per item group before any stock arrives.
  • Never open with zero costs.
  • Change standards with the revalue box ticked, so stock and the inventory account agree.
  • Set a dedicated revaluation account so revaluations are not mixed with purchase price variance.