Actual Cost Method
The actual cost method tracks the cost of each receipt into inventory. When depleting inventory, the processor logically identifies the receipts that are consumed to satisfy the depletion, and assigns the associated receipt costs to the depletion.
The actual cost method uses receipt layers for transaction costing and inventory depletion.
Receipt Layers
A receipt layer is created for each put away or delivery of an item into a cost organization. The item is assigned a cost profile that specifies the valuation structure of the item, and the valuation structure, in turn, specifies the valuation unit of the item. The receipt layer falls within the valuation unit. Under the actual cost method, the cost processor identifies the receipt that is used to satisfy the depletion, and applies the quantity depletion method that is defined in the cost profile. The accounting application currently uses the first in, first out (FIFO) depletion method.
The FIFO accounting method assumes that the goods received first are consumed first. This logic does not require that the inventory be physically moved in FIFO order. In reality, the inventory may be moving out in an unknown or random fashion, especially when the goods are fungible.
Inventory controls the physical flow of inventory, and the actual cost method can be configured to conform to the level of physical tracking maintained for inventory. For example, if the inventory is tracking at the lot level, the costs can also be tracked at that level. If there is more than one receipt for a given lot, the FIFO accounting method assumes that the receipts in the lot are consumed in FIFO order.
Receipt layers can be identified by combinations of any of the following: cost organization, inventory organization, subinventory, locator, lot, serial and grade.
The following table illustrates the process of creating receipt layers for an item within a valuation unit.
|
Transaction Date |
Transaction Type |
Quantity |
Unit Cost |
Receipt Layer Created |
|---|---|---|---|---|
|
01-Jan-2011 |
PO Receipt |
100 |
120 USD |
Receipt #1 |
|
02-Jan-2011 |
PO Receipt |
80 |
100 USD |
Receipt #2 |
|
03-Jan-2011 |
Miscellaneous Receipt |
20 |
105 USD |
Receipt #3 |
Inventory Depletion
This table illustrates the process of depleting the item inventory based on the created receipt layers using FIFO logic:
|
Transaction Date |
Transaction Type |
Quantity |
Unit Cost |
Receipt Layer Created |
Receipt Layer Used for Depletion |
|---|---|---|---|---|---|
|
01-Jan-2011 |
PO Receipt |
100 |
120 USD |
Receipt #1 |
Not applicable |
|
02-Jan-2011 |
PO Receipt |
80 |
100 USD |
Receipt #2 |
Not applicable |
|
03-Jan-2011 |
Miscellaneous Receipt |
20 |
105 USD |
Receipt #3 |
Not applicable |
|
04-Jan-2011 |
Miscellaneous Issue |
-40 |
120 USD |
Not applicable |
Receipt #1 |
|
05-Jan-2011 |
Miscellaneous Issue |
-60 |
120 USD |
Not applicable |
Receipt #1 |
|
06-Jan-2011 |
Miscellaneous Issue |
-15 |
100 USD |
Not applicable |
Receipt #2 |