Item Costing - FIFO, Multiple Locations

Jonathan2708

Hi,

We are using FIFO costing method on all our items. Sometimes customers return items as faulty and we book these into a separate quarantine location at zero cost using the returns module and a 'Return Reason Code' with the 'Inventory Value Zero' ticked. This is because we want to assume the product is faulty and has no value. If we find it can be repaired it may be sold later as 'reconditioned' at 100% GP. However this has had the effect of skewing the average cost used for the items as it is taking into account the zero value of items in the quarantine location. Items are only ever sold from the primary location, NOT the quarantine location.

Ideally we want the items in the quarantine location to NOT be taken into account when calculating the cost of the products and therefore the GP on sales. I'm thinking we should have the setting 'Average Cost Calc. Type'='Item & Location & Variant' in Inventory Setup, whereas it is currently set to 'Average Cost Calc. Type'='Item'. I'm I right here or is there something else I should be considering? If I do need to change this setting, what are the implications?

Any help appreciated,

Jonathan

superjet

since NAV 5.0 version there is such second option you want.
according to the help there are some notes and warnings, hope something from this will help you:

Average Cost Calc. Type Field
The Inventory Setup Table


This field contains information about the method that the program uses to calculate average cost.

Note
If you change the average cost calculation type, only entries in open fiscal years will be affected. Entries that have already been posted in the open fiscal years will also be changed.

The options are:

Item: If this option is selected, the program calculates one average cost per item in the company.

Item & Location & Variant: If this option is selected, the program calculates an average cost per item for each location and for each variant of the item in the company. This means that the average cost of this item depends on where it is stored and which variant (for example, which color) of the item you have selected.

Warning
You must choose the type of method very carefully during setup because if you change the contents of this field, all entries concerning items with costing method Average in open fiscal years will have to be readjusted. This may take several hours if your database is large.

Alex_Chow

Using FIFO, the costing is by location. So it will not skew your COGS. When you run the adjust cost process, the cost will be fine again.

However, for analyzing purposes, you can setup SKU for each location so you know what the average cost is at the time of sale.