About Changing an Item's Cost Method - Actual

This topic describes changing an item's cost method - actual.
Caution: 
Changing an item's cost method or cost type on the Item Costs form can cause the system to automatically post financial transactions that reflect the valuations differences between the old and new cost method or cost type.

If the change you make affects any of the five cost components of inventory, the system will debit or credit the appropriate inventory accounts. The system will make the balancing entry to the Inventory Adjustment Account.

Changing From Average

When changing from Average to LIFO, the system:

  • Creates one LIFO/FIFO stack record for all stockroom locations that share the same set of material, labor, fixed overhead, variable overhead, and outside accounts, and whose quantity on hand is not equal to zero.
  • Assigns to the stack the accumulated quantity on hand from each stock location or lot location record.

When changing from Average to FIFO, the system:

  • Creates one LIFO/FIFO stack record for all stockroom locations that share the same set of material, labor, fixed overhead, variable overhead, and outside accounts and whose quantity on hand is not equal to zero.
  • Assigns to the stack the accumulated quantity on hand from each stock location or lot location record.

When changing from Average to Specific, the system:

  • Uses the value of the unit costs before this change was made.

When changing from Average to Standard:

  • No change is needed.

Changing From LIFO

When changing from LIFO to Average, the system:

  • Calculates the total value of inventory and divides by the quantity on hand to determine the new unit cost.
  • Computes the change in cost and posts changes to inventory accounts and inventory adjustment.
  • Assigns the item unit cost and item Average unit cost to the new average (just calculated).
  • Deletes LIFO/FIFO stacks.

When changing from LIFO to FIFO, the system:

  • Resets the unit costs in the Items form to the most recent cost.

When changing from LIFO to Specific, the system:

  • Determines average unit cost of items in LIFO/FIFO stack. (This will be new Specific cost.)
  • Computes the change in cost and posts changes to inventory accounts and inventory adjustment.
  • Deletes LIFO/FIFO stacks.

When changing from LIFO to Standard, the system:

  • Deletes the LIFO/FIFO stack records.

Changing From FIFO

When changing from FIFO to Average, the system:

  • Calculates the total value of inventory and divides by the quantity on hand to determine the new unit cost.
  • Computes the change in cost and posts changes to inventory accounts and inventory adjustment.
  • Assigns item unit cost and item Average unit cost to the new average (just calculated).
  • Deletes LIFO/FIFO stacks.

When changing from FIFO to LIFO, the system:

  • Resets the unit costs in the Items form to the most recent cost.

When changing from FIFO to Specific, the system:

  • Determines the average unit cost of items in the LIFO/FIFO stack. (This will be a new specific cost.)
  • Computes the change in cost and posts changes to inventory accounts and inventory adjustment.
  • Deletes LIFO/FIFO stacks.

When changing from FIFO to Standard, the system:

  • Deletes the LIFO/FIFO stack records.

Changing From Specific

When changing from Specific to Average, the system:

  • Computes the Average cost of items on hand.
  • Assigns this value to the item's unit costs and Average costs.
  • Adjusts the cost of the old (specific) inventory up or down to the new Average cost.

When changing from Specific to LIFO, the system:

  • Creates one LIFO/FIFO stack record for all stockroom locations that share the same set of material, labor, fixed overhead, variable overhead, and outside accounts, and whose quantity on hand is not equal to zero.
  • Assigns to the stack record the accumulated quantity on hand from each stock location or lot location record.

When changing from Specific to FIFO, the system:

  • Creates one LIFO/FIFO stack record for all stockroom locations that share the same set of material, labor, fixed overhead, variable overhead, and outside accounts, and whose quantity on hand is not equal to zero.
  • Assigns to the stack record the accumulated quantity on hand from each stock location or lot location record.

When changing from Specific to Standard, the system:

  • Enters a zero the Item Stockroom Location or the Lot Location Unit Cost fields.

Changing From Standard

When changing from Standard to Average, the system:

  • Assigns the item's Average unit costs and unit costs to what the Standard costs had been.

When changing from Standard to LIFO, the system:

  • Creates one LIFO/FIFO stack record for all item stockroom locations that share the same set of material, labor, fixed overhead, variable overhead, and outside accounts, and whose quantity on hand is not equal to zero.

When changing from Standard to FIFO, the system:

  • Creates one LIFO/FIFO stack record for all item stockroom locations that share the same set of material, labor, fixed overhead, variable overhead, and outside accounts, and whose quantity on hand is not equal to zero.

When changing from Standard to Specific, the system:

  • Assigns the unit costs on the Item Stockroom Location or the Lot Location records to the unit costs from the Items form.
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