Inventory costing or Inventory valuation is a process of assigning costs to products and is an integral part of Inventory Control. The costing method you pick as a cost control technique defines the way NetSuite calculates the cost of items or inventory.
For instance, the inventory costing method helps you check the ways inventory costing calculations are managed for costs associated with purchasing the same product at different prices over a certain period.
Inventory costing reckon with incidental charges such as
- market fluctuation
When a company picks an Inventory Costing method, it determines the accurate value of income and inventory they report on their financial statements.
For the most part, a company’s purchase prices are often constant. In such a case, the inventory costing method affects the cost of goods sold, inventory cost, gross margin, and net income. Therefore, companies should disclose the inventory costing methods, whether Process Costing, Standard Costing, or Absorption Costing were used on their financial statements.
- Average– Costing is calculated as the total units available during a specific date range. The units are then divided by the beginning inventory cost plus the cost of additions to inventory. Average is the moving average method.
- First-In, First-Out (FIFO)– The first goods purchased are assumed to be the first goods sold. Therefore, the ending inventory consists of the most recently purchased goods. This method is useful to track different shipments of similar products.
- Group Average– This costing lets you track one average cost for an item across multiple locations within a defined group.
- Last-In, First-Out (LIFO)– The last goods purchased are assumed to be the first goods sold. Therefore, the ending inventory consists of the first goods purchased.
*Note: Last-In, First-Out (LIFO) is not available in the NetSuite Australia (AU) edition.
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