Valuation and Costing Methods - FAQs
Overview:
COGS-Well provides two options for inventory valuations - 1) Effective Cost and, 2) Weighted Average Cost. . The valuation method you select will be used for the Inventory Extension, Journal Extension, and Journal Adjustment Reports. It will also be used for the Adjustment Export to your General Ledger. You can select the valuation option you prefer on the Inventory Counts Tab in your Company Settings:
Effective Cost: Effective Cost utilizes the cost from your last purchase of an Inventory Item to value the total quantity of that item. For example, if you had 3 boxes of carrots as an ending inventory count, and if the most current purchase of carrots was for 2 boxes at $10.00 per box, then the ending inventory value for carrots would be $30.00 (3 boxes times $10.00 per box). Notice that all 3 boxes are valued at the cost per case of the most recent purchase.
Weighted Average Cost: Weighted Average Cost uses your starting Item count and value, then adds the quantity and cost of the purchases since your last inventory count, to determine the price to utilize to value your ending Item count.
Example of a Weighted Average Calculation: If you had 3 boxes of carrots valued at $10.00 per case at the start of the period, and if you bought 2 more boxes during the period at $10.50 per box, then the weighted average cost per box for the ending inventory of carrots will be $10.20. The formula is 3 boxes at the start times $10.00 per box which equals $30.00, plus 2 boxes purchased at $10.50 per box which equals $21.00. We then add these two totals together which equals $51.00. $51.00 is then divided by the 5 total cases to calculate a weighted average cost per case of $10.20. If there are 3 cases on-hand in the ending inventory, then the value using the Weighted Average Cost of those 3 cases is $31.60.
Other Inventory Reports:
The Ordering, Receiving, Transfer, Usage, and Production related reports in COGS-Well are using values for an Item's cost that are stored for each transaction that is included in the date range of a report.
Theoretical Cost Reports:
Theoretical Costs are calculated when you select to run a report (on-the-fly). These reports, therefore, prompt for a Theoretical Cost Method on the Report Parameters display. The reports that prompt for cost method are the Target Cost Variance, Menu Engineering, Theoretical Cost of Sales, and Theoretical Profit from Sales. Below is an example:
