Chapter 97: Working with FIFO Cost Conversion (WFCV)

Purpose: Use the Work with FIFO Cost Conversion menu option to change your costing method to FIFO (first-in, first-out), or from FIFO to another method.

For more information:

• Chapter 96: FIFO Costing Overview

• the Costing Method (A25) system control value

In this chapter:

• Overview

• FIFO Costing Conversion Screen

Overview

Purpose: The Costing Method (A25) system control value controls how you track the valuation of inventory in your company. Valid settings are:

• AVERAGE: The system uses the average cost from the SKU file for inventory valuation. When you receive a purchase order, the system updates this cost to reflect the total quantity on-hand at the current average cost plus the quantity received at the new cost.

• STANDARD: The system uses the standard cost from the SKU file for inventory valuation; you must update the standard cost manually.

• FIFO: The system tracks the cost and quantity of each item in one or more FIFO cost "layers," which are typically created during purchase order receipt. Each inventory transaction, such as a sale, takes its cost from the first appropriate cost layer, and reduces the layer's quantity. When a layer's quantity reaches zero, the system moves to the next cost layer for the item.

Note: The system continues to update the average cost regardless of which costing method you use.

When do you need to convert? You need to use the conversion menu option when you change from average or standard costing to FIFO costing, or when you change from FIFO costing to average or standard. You do not need to run the conversion to change between standard and average costing; instead, just change the setting of the system control value using the Work with System Values/Features menu option (fast path = WSYS).

If a new company: If you are first setting up a new company, you do not need to run the conversion; instead, you can just change the setting of the system control value as described above. The system determines whether you can change to FIFO costing this way based on whether there has been any transaction activity for the company; if there have been any inventory transactions, you must run the conversion to switch to FIFO costing.

Why do you need this conversion? With either average or standard costing, the system maintains the average cost and you can maintain the standard cost; when you change between these two costing methods, you are just telling the system to retrieve an item's cost from a different, existing field.

FIFO costing, however, requires the use of records in the FIFO Cost file. When you convert to FIFO costing, the system creates these records; when you convert from FIFO, the system deletes them, as well as records in detail files created to track the costs of related transactions.

The updates performed by the conversion are:

Conversion	Updates
from AVERAGE or STANDARD to FIFO	• changes the Costing Method (A25) system control value to FIFO • creates FIFO Cost records for each item/warehouse or SKU/warehouse using the total on-hand quantity for the warehouse and the cost you specify • updates the FIFO Cost field for the item/SKU
from FIFO to AVERAGE or STANDARD	• changes the Costing Method (A25) system control value to AVERAGE or STANDARD • clears the FIFO Cost file, the Item Transaction Cost file, and the Invoice Cost Detail file for your company

Note: Changing the costing method does not affect the cost of any completed transactions or postings in your company.

Tracking cost change history: Changing to or from FIFO costing is tracked in the Cost Change Audit file if the Track Cost Changes (J69) system control value is set to Y. See Reviewing Item/SKU Cost History for more information.

FIFO Costing Conversion Screen

How to display this screen: Enter WFCV in the Fast path field at the top of any menu, or select Work with FIFO Cost Conversion from a menu.

INR1255 ENTER FIFO Costing Conversion 4/19/99 14:55:33 EZK Mail Order . . . . . .Convert 'From' FIFO to . . . . . .Convert 'To' FIFO from Cost for FIFO Conversion P (S-Standard A-Average P-Last Purchase) F3=Exit F9=Submit F12=Cancel

Field	Description
Select (Unlabeled field to the left of the Convert 'from' FIFO to field)	This field indicates that you are converting from FIFO to average or standard costing. Valid values are: X = Convert from FIFO to the costing method indicated in the next field. ' ' (default) = Do not convert from FIFO to another costing method. You should not complete this field unless your current costing method is FIFO. Alphanumeric, 1 position; optional.
Convert 'from' FIFO to	This field indicates how to set the Costing Method (A25) system control value if you are converting from FIFO to another costing method. Valid values are: AVERAGE STANDARD You should not complete this field unless your current costing method is FIFO. Alphanumeric, 10 positions; required if you entered X in the previous field.
Select (Unlabeled field to the left of the Convert 'to FIFO from field)	This field indicates that you are converting to FIFO from average or standard costing. Valid values are: X = Convert to FIFO from the costing method indicated in the next field. ' ' (default) = Do not convert to FIFO from the costing method indicated in the next field. You should not complete this field unless your current costing method is AVERAGE or STANDARD. Alphanumeric, 1 position; optional.
Convert 'to' FIFO from	This field indicates the current setting of the Costing Method (A25) system control value. Valid values are: AVERAGE STANDARD You can enter only your current costing method in this field. Alphanumeric, 10 positions; required if you entered X in the previous field.
Cost for FIFO conversion	This field indicates which cost in the SKU file to use when creating FIFO layers. Valid values are: P (default) = Last purchase cost: updated each time you receive the item on a purchase order S = Standard cost: you can update this cost through Work with Items/SKUs; the system does not update it automatically A = Average cost: calculated each time you receive a purchase order The system uses this field only if you are converting to FIFO costing; it does not use this field if you are converting from FIFO costing to another method. Alphanumeric, 1 position; required.

Step-by-step instructions: To convert to or from FIFO costing.

1. Convert from FIFO: Enter X in the first Select field and type the desired costing method in the next field.

2. Convert to FIFO: Enter X in the second Select field and type your current costing method in the next field.

3. Optionally, change the Cost for FIFO conversion field to indicate the cost in the SKU file that should provide the initial cost for each FIFO layer

4. Press F9. The system submits the job FIFO_CONV. This job performs the updates described under the Overview.