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Receive Inventory Part at zero cost - where Cost Per part in set

  • 29 June 2021
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Asela Munasinghe
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Earlier I had a question on how to receive a new lot batch with zero cost and @Lahiru Dissanayake clarified it through this post. 

 

No problems there, his recommendation works for those parts.

Now I tried to receive a set of parts with FIFO as the Inventory valuation Method and ‘Cost Per Part’ as the cost level. 

 

I can receive them through ‘Receive Inventory Part’ in IFS and it reduces the total inventory cost as it averages it. That’s ok. 

 

Now let’s say, I issue some of those parts. The Unit Cost and the total inventory value becomes zero. 

 

 Can you recommend a way to do that without total becoming zero please? 

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Best answer by Yeshan Aluthgama 1 July 2021, 02:28

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Lahiru Dissanayake
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Hi @EnzoFerrari , 

 

Unit cost must not be zero here, even though you issue all the parts in inventory. 

Could you please elaborate this further with an example?

At with cost you received this part previously and how you issue those?

 

Thanks,

Lahiru 

-Lahiru-
Asela Munasinghe
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Hi @EnzoFerrari , 

 

Unit cost must not be zero here, even though you issue all the parts in inventory. 

Could you please elaborate this further with an example?

At with cost you received this part previously and how you issue those?

 

 

@Lahiru Dissanayake , sure. As in the previous example these are leftovers from a project that we need to get back into the Inventory at zero cost (since its been paid for earlier) So what I do is, 

 

  1. Use Receive Inventory Part in IFS with zero Unit Cost - just like you advised and received about 100 nos. 

 

 

Same part is available (10 no.s) at the same location for a Unit Cost higher than zero. So it averages the Total Inventory Cost for the new total of 110 parts. That’s ok. 

Now I try to issue the 100 (received at zero cost) to a new project by the use of ‘Issue Inventory Part in IFS. After its issued, the original 10 quantitiy in ‘Inventory part in Stock’ has also become zero :(

 

 

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Lahiru Dissanayake
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Hi @EnzoFerrari , 

This is the nature of the Inventory Valuation method FIFO. 

For an example, lets say

 

Current on hand qty =10 at the cost of 10

Unit cost =10

Inventory value 10*10 =100

 

New receival, 100 pcs at cost 0

New unit cost as per method FIFO= [(10*10) +(100*0) ]/110= 0.9

 

If you issue 10 pcs, according to the FIFO method, it will issue the firstly received 10 parts at the cost of 10.

Value of the issued parts= 10*10 =100

New inventory value =100*0=0

Unit cost is also =0

 

Thanks,

Lahiru 

-Lahiru-
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The FIFO method assumes that the first-acquired inventories (first in) is the first to be used/issued (first out) and later-acquired inventories are being held for future use.

Each new receipt transaction is stored in a FIFO pile and when issues are registered, quantities from the oldest record in the pile will be consumed.

The cost for a specific record in the FIFO pile is set at receipt. If the part is purchased, the purchase order price will be set as cost, if the part is manufactured, the WIP built up on the shop order will be used to calculate a cost and if the part is directly received into stock without an order connection(receive inventory part), you must manually define the cost.

Every new Receipt is saved in a special FIFO table (same for FIFO and LIFO). Quantity, cost, part, site, and receipt date of all available Receipts are stored in this table. The Quantity of the affected Receipt line is subtracted with the Issued Quantity. If the issued quantity is larger than the quantity in the first receipt line, the difference is taken from the next receipt line in order. The cost is then calculated as an average value.

The FIFO table that holds the information about all available Receipts can be accessed by right-clicking the Inventory Part record. (RMB on the Inventory Part which is set with Inventory Valuation method FIFO and select Fifo/Lifo Analysis)

 

 

Asela Munasinghe
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Hi @EnzoFerrari , 

This is the nature of the Inventory Valuation method FIFO. 

 

 

One question @Lahiru Dissanayake - When I receive Inventory Part at zero cost for this part, I get 2 transactions like shown here: 

 

 

And the Unit Cost dosen’t go down from the previous :(

 

 

Is it the estimated material Cost that goes down when we receive zero cost receipts?

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Asela Munasinghe
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The FIFO method assumes that the first-acquired inventories (first in) is the first to be used/issued (first out) and later-acquired inventories are being held for future use.



 

 

@Yeshan Aluthgama this is great, I am just reading this in fact, thank you. According to FIFO / LIFO table, however Unit Cost isn’t shown as zero here. That’s why I raised a question to @Lahiru Dissanayake earlier today

 

 

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Asela Munasinghe
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@Lahiru Dissanayake  @Yeshan Aluthgama Please ignore my question. It works. Thanks a lot, 

 

@Lahiru Dissanayake hope you won’t mind if I chose @Yeshan Aluthgama ‘s answer as the best answer here? 

 

Have a great day!

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