Adaco: Inventory Valuation Method: FIFO

Overview

FIFO (First In First Out)

Within Adaco (formerly Purchasing & Inventory) the FIFO valuation method uses 'First In First Out' (FIFO) methodology to calculate transaction costs and Inventory values of goods on hand. This article will describe the method used for Inventory valuation through FIFO.

Process

• Navigate to the Product’s Inventory tab, opening Inventory on hand and cost for each outlet - as seen in Fig.1

Fig.1 – Product Inventory tab

• Run the Product Bin Card Report, showing the opening value of this product in the Storeroom - as seen in Fig.2

Fig.2 – Product Bin Card Report

From Fig.2 it can be seen that ten cases of product 1906 were received today into the Storeroom with an increased cost of $125.00 per case versus the previous $120.00 per case. The on-hand inventory in the storeroom then recalculates based on quantity received and new cost, as seen in Fig.3.

Please note: The Restaurant and Bar Inventory cost has not changed because the transaction was only recorded in the Storeroom.

Fig.3 - Product Inventory tab

Referencing the Product Bin Card Report, the Purchase Order transaction and price per unit of $20.45 are displayed with the Inventory cost displaying the average cost of the on-hand units - as seen in Fig.4.

Fig.4 – Product Bin Card Report

When the Bar requisitions product 1906 from the Storeroom and the Storeroom posts the transaction, the goods received into the Bar are recorded at the inventory value of the Storeroom, which is $10.00 for FIFO. The Bar’s Product Bin Card Report then shows this update to the inventory value on hand (as seen in Fig.5) as $10.00 for the average inventory cost of all on hand units.

Fig.5 – Product Bin Card Report

Referencing the Product Bin Card Report, the Storeroom also shows this transaction - as seen in Fig.6.

Fig.6 – Product Bin Card Report

Please note: When posting a backdated transaction (such as the highlighted order in Fig.7) the cost will update and recalculate from the posted date forward against inventory on hand.

Fig.7 – Product Bin Card Report

During the physical inventory entry process, if the posted quantity is greater than the calculated system on hand, the average cost of the product will be used to value the additional items; whereas if the posted quantity is less than the calculated system on hand, the FIFO-calculated costs will be used to reduce the closing inventory value.

The following are considerations when using FIFO as your inventory valuation method in Adaco.

• Stock Status Report will not show FIFO values, will still show average pricing.
• Product master will also show average price
• All Reports, except bin card report, will show average cost.
• Typically, users will not be able to check FIFO values but internally when you post transactions, we consider FIFO calculations. For e.g., An outlet has item quantity of 3 with price of $10 and another quantity of 3 with price of $20. If another outlet requested quantity of 4 from this outlet, first quantity 3 will go with price of 10 and quantity of 1 with price of 20.
• In Recipe Center, cost per serving will fluctuate greatly with FIFO/LIFO. If you receive any free items, the price of ingredient will become 0 when you have used any prior stock before this free item receiving.
• When you start the inventory, we will average the price and show them in enter inventory screen and inventory valuation report. If you add additional quantities and lower existing quantities or zeroed out the quantities, it will use FIFO functionality correctly.
• When you revert the inventory, it will average out the pricing totally and will not get back to FIFO pricing; the whole FIFO pricing will be gone.
• Analytics stock status report will always show average pricing.