Cost of Stock in Inventory – How it works?

Perfect. Because SmartB’s software is able to automatically update the cost of your products in your database automatically. In fact, it is able to calculate your inventory cost based on different accounting methods including:

  • First In First Out (FIFO) – read more
  • Last In First Out (LIFO) – read more
  • Standard
  • Weighted Average
  • Lot Specific

Note: Traditionally, this was done using a paper stock card – click here to read more.

How it works?

Now that you know what it can do, you might want to also know how it works. If yes, this page is for you.

Where is your Product Cost?

There are a few sections within the software where the prices are displayed. However, for product cost, go to:

Main Menu > Product > Product >  (Select Product) > Accounting > Costing > Cost Price

(Click on image for larger view)

As shown above, this is what you will see.

Where does the Price come from?

The cost price shown above is derived from:

  • The latest cost of goods received – this is the actual cost to acquire the goods and it usually includes the purchase price (selling price of supplier), shipping cost (see unit on Landed Cost later), discounts or packaging (if any). This is only updated when the goods received are validated.
  • The latest cost of goods manufactured – this is the actual cost to produce these goods from the factory. This is only updated when the production of the goods are completed.

What is the cost of the next product sold?

The cost that is being captured in the accounting module would really depend on the method applied. For example, if you were to use a FIFO method, the cost of your next batch of sand will only be RM1.00 instead of RM1.10 (for sand). That’s because the first batch of sand has remaining stock and that should be sold first.

Hence, the cost of the next batch of sand could be RM1.00 only.

Meanwhile, if the sales exceeds what is left of the first batch, you could potentially have a mixed. That means, if you are selling 100kg of sand, and 30kg was from the first batch, then the calculation will be

Cost of Sand sold = RM1.00 x 30kg + RM1.10 x 70kg = RM107.00

Note: The calculation would be very different for LIFO or Average costing method. 

Where can I find this calculation?

The best place to find this is to use your Stock Card. Go to:

Main Menu > Inventory > Reports > Stock Card

(Click on image for larger view)

In this example,

  • 426kg of sand was left from the previous batch of sand
  • 12,500 kg of sand was purchased recently
  • 12,537 kg of sand was sold (or used for the new production order)

Hence, the cost of sand is

Cost of Sand = RM1.00 x 426kg + RM1.10 x 12,111 (12,537 – 426) kg = RM13,748.10

Video Example:

Here’s a video which I made for my intern. This is on how we can fix stock that has no cost allocated to it.

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2 thoughts on “Cost of Stock in Inventory – How it works?”

    • Correct Answer: a) True

      Explanation: Yes you can find the stock transaction (or journal) from the stock card. When reading the stock card, the reference number (e.g. GT-0083) on the left side of the card is already hyperlinked. Click on it and that will lead you to the relevant stock transaction.

      Reply

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