FIFO INVENTORY COSTING. Overview Getting Started Explanations of Transactions

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1 Overview Getting Started Explanations of Transactions

2 The documentation in this publication is provided pursuant to a Sales and Licensing Contract for the Prophet 21 System entered into by and between Prophet 21 and the Purchaser to whom this documentation is provided ( License Agreement ). In addition, the licensed software to which this documentation refers may be supported in accordance with a customer support agreement by and between the same parties ( Support Agreement ). All warranties, conditions of use, transfer restrictions, and other provisions in the License Agreement or Support Agreement which are applicable to Licensed Software, are applicable to this publication. In addition, this publication may include inadvertent technical inaccuracies or typographical errors for which Prophet 21 is not responsible. Changes may be periodically made to this publication; these changes will be incorporated in new editions of the publication. Any questions about the material contained in the publication should be addressed to the Prophet 21 Customer Support Department at ITS-PR21. Nothing in this statement amends or extends the terms of your agreement with Prophet 21 including any warranties that may be included in our products. Warranties for such agreements are set forth in your agreement with Prophet 21. Improvements and/or changes to the Licensed Software described in this publication may be made by Prophet 21 at any time without notice. DOCUMENTATION CONVENTIONS The eyeglass symbol ( ) indicates a field on which you can browse. The star ( ) indicates the default for a field. To allow for the widest possible parameters when printing a report or performing a function, accept the defaults for all of the parameter fields. To accept the defaults, either escape through all the fields, or press [Enter] without specifying any values. Generally, samples in the documentation are shown using the default values. Start and End parameters define the limits to a range of information you will print on a report. If information does not appear on a report, it may be because the information was excluded from the Start, End range. For a detailed explanation on how maintenance screens function, refer to the Tour Guide manual. Use the search tool in Adobe Acrobat Reader 4.05c or higher to find which manual describes a specific module, job, or function. 2/19/02 Prophet 21 Acclaim Version 13 The Prophet 21 system and Prophet 21 Acclaim are registered trademarks, and Prophet 21 and ScratchPad are trademarks of Prophet 21. All other trademarks and registered trademarks are the property of their respective companies. ii

3 Table of Contents 1 INTRODUCTION TO FIFO 4 Examples of How FIFO Layers are Affected 5 2 GETTING STARTED 8 Enabling FIFO 8 Setting the FIFO Company Option 8 Creating the Files for FIFO Layers 9 Setting the Company Option for Freight Cost Allocation 9 Creating the FIFO Layers 10 ITEM-ADJUST 10 ITEM 13 3 EXPLANATIONS OF TRANSACTIONS 19 Exceptions to FIFO costing rules 19 ORDER 20 SHIP-EDIT 21 INVOICE 22 EXP-ORDER 22 SALES-HISTORY 22 MATERIAL 23 PAYABLES 25 ITEM-COUNT 26 ITEM-LIST 27 Other ITEM-LIST Reports 29 iii

4 1 INTRODUCTION TO FIFO The FIFO (First In, First Out) Inventory Costing method is used to attach a cost value to units of stock as they are received into inventory. Unlike the Standard Cost or Moving Average Cost methods, which assign a single cost to all units of a particular item, the FIFO method maintains multiple cost layers, which are created when inventory is received. As units are sold to the customer, the layers are depleted (oldest first) and the corresponding cost is used on the invoice. If a customer order depletes stock from more than one cost layer, the invoice will use a weighted average of the costs involved. FIFO cost layers are created whenever transactions that add to stock (e.g. material receipt, inventory adjustment, customer return, etc.) are processed by the system. When inventory is increased, the system records the stocking location, date, time, cost, and quantity, and creates a new FIFO layer. The quantities and costs are stored in terms of SKU units (unit size = 1). As inventory is depleted, the units in the oldest cost layer are used first, and the corresponding unit cost is used as the transaction cost. If the transaction quantity exceeds the inventory quantity in the oldest cost layer, the next cost layer(s) is (are) used to contribute the balance. A single customer order might deplete inventory from several FIFO cost layers. When units from multiple layers are used, the transaction cost is calculated as the weighted average of the quantities and costs used from each of the layers involved. The system retains the most recent eight totally depleted layers so that material that is adjusted via inventory or cycle counting can be placed back into previously completed layers as needed. Note: FIFO inventory costing is not compatible with the Rentals, Welding, Service and Maintenance, Consignment, and Rebate Journal optional packages. Do not choose FIFO if you use one of these packages. 4

5 1 INTRODUCTION TO FIFO EXAMPLES OF HOW FIFO LAYERS ARE AFFECTED Given the following FIFO inventory layers (all quantities are in terms of SKU units): Loc Date Time Original Quantity Open Quantity Cost 1 05/01/96 09: /04/96 12: /06/96 11: /06/96 12: A transaction is processed that relieves 45 units from inventory. The system checks the FIFO layers and determines that the oldest layer contains sufficient quantity (55) to cover the entire transaction. The system deducts 45 units from the oldest layer, leaving 10 open. The transaction is processed with a unit cost of $ for a total cost of $ ($ x 45). The FIFO layers now appear as follows: Loc Date Time Original Quantity Open Quantity Cost 1 05/01/96 09: /04/96 12: /06/96 11: /06/96 12: The next transaction relieves 20 from inventory. When the system checks the FIFO layers, it determines that there are not enough units in the oldest layer to cover the entire transaction. The system uses the 10 units remaining in the oldest layer first, then checks the next oldest layer. This layer has sufficient quantity (75) to cover the remaining 10 units. The system uses 10 units from this layer to complete the transaction. The unit and total costs for the transaction are: Unit cost = 10 x (first layer) + 10 x (second layer) 20 (total quantity) = Total cost = x 20 (units) =

6 1 INTRODUCTION TO FIFO The FIFO layers now appear as follows: Loc Date Time Original Quantity Open Quantity Cost 1 05/01/96 09: /04/96 12: /06/96 11: /06/96 12: The next transaction relieves 140 units from inventory. The system checks the layers and determines that it needs 65 from the oldest layer, 60 from the next oldest layer, and 15 from the third oldest layer to cover the transaction. The unit and total costs for the transaction are: Unit cost = (65 x ) + (60 x ) + (15 x ) 140 = Total cost = x 140 = The FIFO layers now appear as follows: Loc Date Time Original Quantity Open Quantity Cost 1 05/01/96 09: /04/96 12: /06/96 11: /06/96 12: The first three layers have been fully depleted, and the last (most recent) layer has 25 units remaining. If 150 units are received, a new cost layer will be added as follows: Loc Date Time Original Quantity Open Quantity Cost 1 05/01/96 09: /04/96 12: /06/96 11:

7 1 INTRODUCTION TO FIFO 1 05/06/96 12: /12/96 14: The system maintains up to eight FIFO cost layers with zero quantities. As layers are depleted, the system checks the current number of empty (i.e., quantity = zero) layers. If there are eight empty layers, the recently depleted layer is saved, and the oldest layer is deleted from the system. The system retains 8 empty layers for use with the ITEM-COUNT module. When counting items causes an increase in stock, the system does not create new FIFO layers. Existing FIFO layers are modified to reflect the change posted in ITEM-COUNT. Note: FIFO costing only applies to stock items (those stored in the stock item file) that are sold from stock. Catalog non-stock and true non- stock items cannot be costed using FIFO costing methods because there is no inventory for the FIFO calculations to work on. Non-stock items are costed based on the cost entered on the customer order or the vendor purchase order, depending on the setting of the non-stock cost update company option. This also holds for direct shipment items. 7

8 2 GETTING STARTED ENABLING FIFO SETTING THE FIFO COMPANY OPTION To use FIFO inventory costing, you must enable the feature. In the Inventory Control Options in the COMPANY module, choose the option for Cost Basis and set it to FIFO. COST BASIS OPTIONS Cost Basis describes your company s way of costing. Each method must be consistent with respect to inventory value, cost of goods sold, and cost of goods received. Any of the four costing methods can be used in valuing inventory for tax purposes. STND = The Standard Cost is obtained from the designated Location Price/Cost Record. L-AVG = The Moving Average Cost is obtained from the location`s own Price/Cost Record. C-AVG = The Moving Average Cost is obtained from the Moving Average Cost field in the Common Item Record. FIFO = The FIFO Cost is obtained thru the items cost depending on the FIFO layer of the item. ** The Standard Cost is set and updated by the user. The Moving Average is constantly updated by the system. 1 COST BASIS FIFO (STND L-AVG C-AVG FIFO) FIELD: The FIFO files need to be created once this option is enabled. The following message appears: *** Run INSTALL to create the FIFO Layers Files. *** 8

9 2 GETTING STARTED CREATING THE FILES FOR FIFO LAYERS At the command terminal with the system stopped, type INSTALL at the Job prompt. JOB...INSTALL If you are running INSTALL from a terminal other than the command terminal, or if the system is not STOPPED, the following screen displays: *** IMPORTANT *** Install should be run from the command terminal with the system stopped. You may still run INSTALL from this terminal but the files for the new features will not be automatically generated. Continue with installation? (Y N): This message serves as a warning to you that the files will not be created. If you enter "Y" at this prompt, the following message displays: You should run the job "INSTALL-PACKAGE" from the command terminal with the system stopped when you are done INSTALL. Hit a key to continue. As indicated in this message, if you are running INSTALL from a terminal other than the command terminal, you should either stop the installation process and run it from the command terminal with the system STOPPED, or else run the Job INSTALL-PACKAGE from the command terminal with the system STOPPED after you have finished. After the installation process is complete, the following files are created: FIFBKD, FIFBKX, FIFOD, FIFORD, FIFORX, FIFOX, FIFWRD, and FIFWRX. SETTING THE COMPANY OPTION FOR FREIGHT COST ALLOCATION In the company Inventory Control options, there is an option for Freight Cost Allocation. If this option is enabled, the FIFO layer cost will include the prorated freight amount entered during material receipt. 9

10 2 GETTING STARTED FREIGHT COST ALLOCATION If enabled, this feature will allow the user to enter incoming freight, insurance, tax amounts, and received amount during receipt. The entered amounts, prorated by the item's received value/weight/volume against the total received value/weight/volume, will be distributed across received items in the following manner: a) When the received items are allocated to a customer order with a freight code of 'B', the prorated freight will be added out to the incoming freight for the shipment. b) When the received items are allocated to a customer order with a freight code of 'P', the prorated freight will be added out to the unit cost of the allocated items. c) For stock items, the prorated freight will be added into the moving average cost, the FIFO layer cost (when enabled), and the last cost. *** THIS FEATURE IS NOT COMPATIBLE WITH COMPANY COST BASIS OF "STND". *** 1 FREIGHT COST ALLOCATION N (Y N) FIELD: Review this option and determine if you want incoming freight charges to be distributed across the FIFO layers. CREATING THE FIFO LAYERS ITEM-ADJUST For new users of the Prophet 21 System, the ITEM-ADJUST module is used to enter initial stock quantities, and to manually create the FIFO cost layers. During item adjust, the system prompts for the SKU COST each time a quantity is increased. This occurs for both adjustment types (EXACT and INCR) as long as the new stock quantity is greater than the original stock quantity. The adjustment screen shown is for an EXACT adjustment. ADJUSTMENT SEQ 1 LOCN: 1 YARDLEY, PA 1 ITEM M&W 565 DESC 1 3/4 90D 2SCR FLEX CONN DESC 2 Q-FREE 0 (SKU) 2 Q-NEW 100 (SKU) 3 CREATE BINS? N (Y N) 4 SKU COST FIELD: The SKU COST field defaults to the value in the Last Cost field from the Item Location Record(modified by the unit size) at the location for which the stock is being adjusted. If the Last Cost at this location is 0, the field defaults to the common item Last Cost value. The SKU COST field appears for adjustments made in the 10

11 2 GETTING STARTED ITEM-ADJUST module, as well as those made during order entry and front-counter order entry, through the use of the "I" for Item Adjust disposition. In the example above, one FIFO layer with a quantity of 100 and a SKU Cost of $ will be created. If three FIFO layers need to be created for the 100 units of free stock, (for example, one layer of 20, a second layer of 20, and a third layer of 60), three item adjustments should be made. Each item adjustment builds one layer. The first adjustment is the first cost you would associated with that quantity; the second adjustment is the second cost associated with the layer,etc. ITEM-ADJUST builds layers using the current date and time. If the layer needs to be edited to reflect an accurate date and time, use the option to edit FIFO layers, found in the ITEM module. STOCK ADJUSTMENTS REGISTER The Stock Adjustments Register includes the FIFO cost totals. These totals replace the Standard Cost totals on the register. BR# 1 PROPHET 21 - YARDLEY STOCK ADJUSTMENTS REGISTER 02/12/96 PAGE 1 ADJT # DATE DESC LOCN ENTRY CODE ITEMS FIFO-COST-CHG LAST-COST-CHG AVRG-COST- CHG /09/96 SEQ ITEM DESCRIPTION NEW-QTY QTY-CHG FIFO-COST-CHG LAST-COST-CHG AVRG- COST-CHG ORDER # 1 M&W /4 DKR REEL ADJT # DATE DESC LOCN ENTRY CODE ITEMS FIFO-COST-CHG LAST-COST-CHG AVRG-COST- CHG /09/96 1 EXACT SEQ ITEM DESCRIPTION NEW-QTY QTY-CHG FIFO-COST-CHG LAST-COST-CHG AVRG- COST-CHG ORDER # 2 M&W 565 3/4 90D 2SCR FLEX CONN For those adjustments which decrease stock, the system uses the FIFO layering rules described in the Examples section to remove stock from the oldest layer first. The cost of the adjustment is derived from the costs of the layers that are used, as shown in the Examples. You cannot specify a cost for an adjustment which decreases stock. HIDDEN OPTION TO CREATE INITIAL FIFO LAYERS For users already live on the Prophet 21 System, a hidden option is available to take the current on-hand quantity for each item and convert it to a FIFO layer. This is beneficial if you want to begin to use FIFO, but have no FIFO layers. You need to build current on-hand stock into a getting started layer. Using this hidden option, the system will not create layers for items with zero quantity or zero cost For example, item EAS 9823 has 100 in free stock. Standard cost for this item is $ You could run the hidden option to have the system automatically create a layer for EAS quantity is 100 at a cost of $4.35 This hidden option will automatically take the cost (standard, location moving average, or common moving average) you specified and build one layer for every item. To use the hidden option, access the Item module. 11

12 2 GETTING STARTED Type < at the Option prompt. The screen will display a hidden menu. Type 8) [Enter]. (That s the number eight, followed by a close parenthesis.) The following screen appears: This hidden option will allow you to automatically create the initial FIFO layers for all items within a specified location that you specify. The initial SKU COST will be taken from the standard cost, location moving average cost, or the common moving average cost depending on the cost basis you choose. NOTE: only items that have no FIFO layers will be affected. There will be no additional FIFO layers created for items that already have a FIFO layer(s). Also, items with 0 (zero) costs or 0 (zero) quantity will not have a layer created for them. Continue? (Y N) To proceed, type Y. To exit the option, type N. The Auto-Create Initial FIFO Layers screen appears, as shown: AUTO-CREATE INITIAL FIFO LAYERS 1 LOCATION # 1 PITTSBURGH 2 COST BASIS STND (STND L-AVG C-AVG) FIELD: Enter the LOCATION # where the FIFO layers will be built. Enter the COST BASIS which will be applied to all items: STND = standard cost L-AVG = location moving average cost C-AVG = common moving average cost To abort the process, press [-][1] at the Field prompt. To proceed, press [Enter] at the Field prompt. Pressing [Enter] will automatically create a layer for every item, using the parameters you specified. The following screen displays: PROCESSING... FINISHED. PRESS ANY KEY TO CONTINUE... Note: Items with FIFO layers will not be affected by this hidden option. No additional layers will be created. 12

13 2 GETTING STARTED ITEM For users already live on the Prophet 21 System who want to manually create FIFO layers, the option to Enter FIFO Layers in the ITEM module should be used. This option allows you to build FIFO layers out of quantities already in the system. This option should only be used if you are already live and have free stock that you want to divide into layers. The options to enter, edit, view, and print FIFO layers are under FIFO option in the ITEM module. Enter is used to build FIFO layers if quantities are already on your system. Edit is used to edit an existing FIFO layer. See page 16for details. View is used to view the details of a layer. See page 18 for details. Print is used to print a journal of all edits to the FIFO layers. Note: Prophet 21 recommends placing a high security setting on the options to enter and edit FIFO layers. FIFO principles require that these options are used in extreme situations. For data integrity, we recommend that only the System Administrator have access to these options. ENTERING FIFO LAYERS After choosing to enter or edit FIFO layers, you are prompted to access the layers By item code, which is one item at a time, or By a range of item codes. Sequencing Options 1. By item code 2. By a range of item codes OPTION: When a range is selected, the parameter screen appears. The answers to these parameters determine the range of FIFO layers that you will access. 13

14 2 GETTING STARTED FAST ENTRY/EDIT OF FIFO LAYERS 1 LOCATION # 1 YARDLEY, PA 2 SEQ IT (VN IT PR VS) 3 START 4 END ZZZZZZZZZZZZZZZZZZZZZZZZZZ SALES CLASSES 5 START 0 6 END 99 PURCH CLASSES 7 START 0 8 END 99 ITEM SUB-GROUP 9 START 0 10 END 99 FIELD: Items may be presented in vendor# / item# (VN), item code (IT), product group sort code (PR), or vendor sort code (VS) sequence (if enabled). You can also limit the entry/edit by sales class, purchase class, or item subgroup. The items included in the specified ranges appear one at a time, allowing you to create FIFO layers for individual items. Layers can only be created when there is a quantity to post (i.e., units are in stock but are not assigned to a layer). You can quit at any time, and all layers that have been created are saved, including the current item. When a single item is selected, the system prompts for item code and location. The following screen in displayed: 1 ITEM CODE: M&W 560 1/2 90D 2SCR FLEX CONN 2 LOCATION: 1 YARDLEY, PA QTY ON HAND: QTY IN LAYERS: 0.00 QTY TO POST: =============================================================================== DATE SOURCE TR# ORIGINAL QUANTITY OPEN QUANTITY SKU COST "C" to Create layer "Q" to Quit The system displays the stock status of the item at the specified location. Shown are the current quantity on hand (free + allocated stock), the quantity currently in layers (if any), and the quantity to post (quantity on hand - quantity in layers). 14

15 2 GETTING STARTED In the example above, 16 are in free stock, but none are built into layers. The "C" to Create layer option only appears when there is a quantity to post. Entering a "C" prompts you for the following layer information in the footer section of the screen: 1 DATE 07/03/96 2 SOURCE REC 3 ORIG QTY FIELD: 4 OPEN QTY SKU COST Layer entry includes the date, source, original quantity, open quantity, and SKU cost. SOURCE can be set to REC for a material receiving, RET for a customer return, or ADJ for an item-adjustment. Again, this option was designed for existing Prophet 21 users to divide free stock into FIFO layers. As open quantities are entered, the Qty in Layers and Qty to Post fields are updated to reflect the changes. The Qty to Post must be zero (0) to exit the screen. The "M" for More records option will appear when more than one screen of layers exist. Screens are advanced by entering an "M". The "R" to Restart list option will appear on subsequent screens when using the "M" for More records option. Entering an "R" displays the first screen of layers again. The "E" to Exit option will appear when there is no quantity to post. Entering an "E" exits the layer screen and prompts you for another location. Any entry can be ignored by entering a -1 at FIELD. 15

16 2 GETTING STARTED EDITING FIFO LAYERS If a change needs to be made to a FIFO layer, choose the option to Edit FIFO Layers on the ITEM menu. After selecting an item to be edited (either by a range or a single item), the following screen displays: 1 ITEM CODE: M&W 565 3/4 90D 2SCR FLEX CONN 2 LOCATION: 1 YARDLEY, PA QTY ON HAND: QTY IN LAYERS: QTY TO POST: 0.00 =============================================================================== SEQ# DATE SOURCE TR# ORIGINAL QUANTITY OPEN QUANTITY SKU COST 1 02/09/96 ADJ /12/96 ADJ /12/96 REC E to Exit SEQ#: Q to Quit Most fields are self-explanatory in the edit screen. However, the TR# field indicates the transaction number. The transactions numbers are either PO numbers for receivings, or order numbers for customer returns, or transactions numbers for item adjustments. Editing any FIFO layer deletes the transaction number. In this way, you can tell if a layer has been edited. Original layers will display a transaction number (except for item adjustments) and edited layers will not display a transaction number. The "M" for More records option will appear when more than one screen of layers exist. Screens are advanced by entering an "M". The "R" to Restart list option will appear on subsequent screens when using the "M" for More records option. Entering an "R" displays the very first screen of layers again. You may enter "E" to Exit the screen, or choose the SEQ# associated with the layer you wish to edit. When you edit a layer, the following window appears in the footer section of the screen. Layers cannot be added or deleted using this option. 1 DATE 02/12/96 2 SOURCE ADJ 3 ORIG QTY FIELD: 4 OPEN QTY SKU COST The Q to Quit option allows you to exit the editing screen. Any changes made to the item on the screen when the Q prompt is entered will be saved. You may edit any of the fields with the following exceptions: 16

17 2 GETTING STARTED The original quantity of a layer cannot be changed to a value less than the current open quantity of the layer. You cannot exit this screen unless the quantity in layers (the sum of all the open quantities) equals the quantity on hand. Every change made to a layer is recorded in the FIFO Inventory Layer Edit Register. If the SKU cost of a layer is edited, the change is journalized on the Item Cost Change Register. Some examples of the use of the option to edit FIFO layers are: 1. If a receipt is entered for 1000 instead of 100, an item adjustment can be done to correct the free stock quantity in the system. However, if there are multiple FIFO layers existing, the item adjustment will not update the layer which was created by the mistaken receipt. This option can be used to properly redistribute the open quantities to their proper layers. 2. If a receipt is entered for 100 instead of 1000, an additional receipt may have to be made for the additional 900. The date on this second layer may need to be changed to reflect the actual receiving date. Alternatively, an item adjustment may have to be made to get the other 900 into stock. This option may be used to change the layer created by that item adjustment to be sourced from a receipt and have the true receipt date instead of the adjustment date. PRINTING FIFO INVENTORY LAYER EDIT REGISTER Entries are sorted by location and by item code within location. Old and New values are shown for Layer Date, Source, Original Quantity, Open Quantity, SKU Cost, and Extended Cost. The user ID of the person who made the change and the time the change was made appear on the report. Fields which were not edited will display the same value for both Old and New. Location and grand totals are included. 17

18 2 GETTING STARTED The invitation to "CL"EAR REGISTER is presented when the register has finished printing. Clearing will only occur if CL is entered. USE DUE CAUTION TO "CL"EAR REGISTER... VIEWING FIFO LAYERS When you select the option to view FIFO layers, the system prompts for an ITEM CODE and LOCATION number. Once this information has been entered, the system displays all FIFO layers that exist for the item and location, including fully depleted layers that have not been deleted. The option to view a FIFO layer displays the date, time, original quantity, open quantity and SKU cost for each layer. 1 ITEM CODE: M&W 565 3/4 90D 2SCR FLEX CONN 2 LOCATION: 1 YARDLEY, PA DATE TIME ORIG. QTY OPEN QTY SKU COST 02/09/96 17: /12/96 09: /12/96 15: FIELD: "L" for Next Location "S" for Next Item Same Location "N" for Next Item The "L" for Next Location option displays the FIFO layers for the next location (in numeric sequence) for the item. "N" for Next Item displays the FIFO layers for the next item (in item code sequence) at the original location. "S" for Next Item Same Location displays the FIFO layers for the next item (in item code sequence) for the location currently displayed. You can also specify a different ITEM CODE or LOCATION by editing either of these fields. 18

19 3 EXPLANATIONS OF TRANSACTIONS FIFO costing is used in any transaction which adds or removes stock from the system. Stock transactions that require FIFO costing are: order entry customer return entry front counter order entry shipment confirmation point of sale order entry invoicing item-adjustment entry transfer generation item inventory counting material receiving (purchase orders and transfers) vendor returns. Material receipts reconciliation can also modify FIFO layers, in that cost changes could result from variances between the vendor's invoice and the original cost at which the item was received. Reports from the ITEM-LIST module are produced using FIFO costing. Included is a new FIFO Inventory Value Report that breaks down inventory according to its FIFO layers. ITEM view options have the ability to display the FIFO layers currently in existence at a given location. ITEM-LEDGER entries will be recorded using the appropriate FIFO costs. Who-Bought-What SALES HISTORY records any FIFO costs/quantities that were used for a given invoice line, so that customer returns can be processed using the same costs as the original invoice. The system continues to maintain moving average costs. EXCEPTIONS TO FIFO COSTING RULES There are four exceptions to the FIFO costing rule: 1. If costs are edited on a line-item, either at order entry time or in EXP-ORDER, the edited cost will be used. It is recommended that the user-id option to prohibit cost-editing be enabled. If employees have the ability to edit costs, FIFO costing will be void. Therefore, it is recommended that the option for cost editing during order entry and the option for cost editing in EXP-ORDER are set to no. 19

20 3 EXPLANATIONS OF TRANSACTIONS 2. If the item is costed from a Customized Item record that uses a fixed cost, the fixed cost will be used. The Customized Items optional package must be installed for this exception. 3. If the item is costed at order entry time from a cost override table, the override cost will be used. Cost override tables are set up in the SALES-PRICING module. 4. If the item is direct shipped to the customer, the projected FIFO cost will be used. Because a direct shipped item is not removed from your stock, FIFO costing is not used. The cost at order entry will be estimated by the current FIFO layers, just as if it were not being direct shipped. If there is no stock in the layers or no layers at all, the item will be uncosted. The cost will be determined by the associated purchase order, and this will be the actual cost for the item. In Exceptions 1-3, the FIFO layer is decremented, but the FIFO cost is not used. Note: These exceptions are referenced throughout this documentation, so please keep them in mind. ORDER At order entry time, the system costs items using the current FIFO cost for the item. If the item has no FIFO layers, the item will be uncosted. FIFO layers are relieved during invoice generation. Therefore, the cost and profit shown at order entry time are based on current FIFO costs and may be different from the actual cost of what appears on the invoice. During invoice generation, the current FIFO layer cost is obtained. If you use the "I" for Item Adjust disposition to adjust stock upward for an item, the system prompts for a SKU COST for the adjustment. The SKU COST defaults to the value in the Last Cost field (modified by the unit size) in the same manner as in the ITEM-ADJUST module (see ITEM-ADJUST section). If you use the "I" for Item Adjust disposition to adjust stock downward, the adjustment follows the FIFO layering and costing rules as described in the Examples section. Front Counter, Post Order, and Point of Sale If you enter an item for which sufficient quantity does not exist to cover the order quantity, and the system is allowed to make an automatic (adjustment code 2) stock adjustment quantity, the system prompts for a SKU COST to be assigned to the adjusted quantity. As in ITEM-ADJUST, the SKU COST defaults to the location Last Cost (modified by the unit size). 20

21 3 EXPLANATIONS OF TRANSACTIONS Customer Returns When entering customer returns, a scan is available which displays the Who-Bought-What history for the given customer/item combination. Individual entries display the cost that was used when the invoice was printed. If the item was not costed via Exception 4 (see Exceptions section), the entries will have the original FIFO layers, with quantities and costs stored. Item: RUS Desc: PHILIPS HEAD SCREWDRIVER Customer: HARRIN Seq# Invoice # Inv-Date Prod UT Size Ut-Price Ut-Cost Qty =============================================================================== /02/96 59 EA /12/96 59 EA /31/96 59 EA =============================================================================== <ESC> for More "T" for Toggle desc "E" for Ext'd price/cost Seq#: "-" for Previous "S" for Starting inv# You can select one of these entries, and the quantity, price, and cost are carried over to the customer return. If the item is being returned to stock, the system creates new FIFO layers to match the layers originally used at invoicing time. The layers are created using the date and time at which the material is returned to free stock. This can be either at the time the customer return is entered, or at the time the customer return shipment is confirmed, as determined by the Customer Return option. At the time the material is returned to stock, the new FIFO layers are created. The layers are created using the cost and quantities from the original invoice, while the date an time are the actual date and time of creation. This puts the returned material at the end of the FIFO chain. The layers are also marked as being created by a customer return. Should a quantity less than the original order quantity be returned, the system re-creates the FIFO layers starting from the first original layer used, until the entire return quantity is accounted for. If the item was invoiced via Exception 4 (direct shipment), then only one FIFO layer is created for the return, using the cost from the customer's original invoice. SHIP-EDIT If an item is undershipped at shipment confirmation time, and the balance is not returned to stock, the system makes an item adjustment to indicate this. The adjustment is treated as a stock decrease and is costed using the FIFO costing rules as described in the Examples section. 21

22 3 EXPLANATIONS OF TRANSACTIONS If an item is overshipped at shipment confirmation time, and there is sufficient stock in the system to account for the overshipment, the item is costed according to the normal FIFO rules (or Exception 1,2, or 3 if appropriate) when the invoice is printed. If there is insufficient stock in the system to cover the overshipment, the system creates a new FIFO layer containing the quantity of the overshipment. The system prompts for a SKUcost to be associated with this layer, which defaults to location Last Cost (modified by the unit size). INVOICE At the time the invoice is printed, the actual FIFO based cost is computed for the line item. At this time, the appropriate FIFO layers have their quantities decremented and the SKU and total costs are computed. If the item falls under Exceptions 1,2, or 3, the FIFO layers are still decremented, but the FIFO cost is not computed and the cost appropriate to the exception is used. If the item falls under Exception 4, the layers are not decremented and the cost appropriate to the direct shipment is used. Layers are not decremented in this case since none of the material for a direct shipment actually comes from inventory. This applies if the invoice is printed via the INVOICE, ORDER (Post-Order entry), FRONT-COUNTER, or POS-ENT modules. On the Daily and Monthly Invoice Registers, the Sales-Cost and Invt-Cost (inventory cost) columns display the costs computed at invoicing time. This takes into account FIFO costing and any items which fall into the exception categories. Likewise, the product group totals sections of the invoice registers also reflect these costs. As the invoice registers do not show line item detail, these costs are not be broken out to show the individual layers and quantities which were used to derive the costs shown. Reconciliation of costs which come from Exceptions 1, 2, or 3 can be done via the Invoiced Cost Edit Variance Report. EXP-ORDER Until the item is invoiced, the EXP-ORDER view, edit, and report options will display costs in terms of the projected FIFO cost. After the item is invoiced, EXP-ORDER will be updated with the true FIFO cost used on the invoice. Until an item is invoiced, the true FIFO cost of that line item is not known. Cost edits made in the EXP-ORDER module have the same effect as those made at order entry time in that they will cause FIFO costing not to be used for the item at invoicing time. SALES-HISTORY Who-Bought-What sales history is built so that the individual costs and quantities at which an item is invoiced are stored with the line-item. This makes it possible to see the specifics of the cost for an item. This is also used when processing customer returns in order to allow the items to be returned according to their original layered costs and quantities. 22

23 3 EXPLANATIONS OF TRANSACTIONS VIEW WHO-BOUGHT-WHAT SALES HISTORY INFORMATION When the Show Sources option is selected for an entry, the system displays the individual layers and quantities for each entry. Items costed via Exceptions 1, 2 or 3 are noted but show the FIFO layers which were decremented when they were invoiced. Items costed via Exception 4 are also noted and do not display FIFO layers since they don't apply to direct shipments. CUST: KELELE KELLY ELECTRIC ITEM: M&W 565 DESC: 3/4 90D 2SCR FLEX CONN =============================================================================== INV # INV-DATE PROD UT SIZE UT-PRICE SALES-QTY EXT-PRICE PR % GEN PRICE SOURCE SPEC PRICE SOURCE GEN COST SOURCE SPEC COST SOURCE CONTRACT # /12/ KQ ITEM RECORD COLUMN 1 PRICE ITEM RECORD FIFO =============================================================================== 1. Suppress sources Option: MATERIAL When receiving material from a purchase order or a transfer, the system creates a FIFO layer at the receiving location for the quantity being received. For a receipt against a purchase order, the cost from the purchase order is the cost used to create the layer. For a receipt against a transfer, the cost is taken from the FIFO layers of the source location. If more than one layer is needed to satisfy the transfer quantity, the same number of layers used will be created when the items are received. For example, two layers are used to transfer a item. When the item is received, two new layers will be created for that item at the destination location. The date and time assigned to the FIFO layer are based on two new fields which are available during material receipt. This is the date and time the material actually arrived, which may be different from the date and time the material is being recorded in the system. 23

24 3 EXPLANATIONS OF TRANSACTIONS Purchase Order# Vendor: ACME Number of items ordered: 1 Number of items complete: 0 Number of items cancelled: 0 PO-Date: 02/12/96 Required-Date: 02/12/96 External PO#: Instruction 1 Instruction RECEIPT DATE 02/12/96 "S" to allocate Specific items 2 RECEIPT TIME 15:54 "A" to allocate All items 3 ALLOCATE S "I" to enter Freight & Insurance charges FIELD: The RECEIPT DATE and RECEIPT TIME fields have default values equal to the current system date and time. The values can be edited from the FIELD prompt. Once the item allocation screen appears, the Receipt Date and Time can no longer be edited and are stamped on any newly created FIFO layers. FIFO layers are created regardless of whether the material goes into free stock or is immediately allocated to a customer backorder or transfer backorder. If incoming freight is specified by using the "I" to enter Incoming option, this freight is included in the FIFO cost for this layer. This freight is prorated across all the items received based on either the cost of the items or the weight of the items. When receiving transfers and using the "I" for Incoming Freight option, you can enter a transfer charge. Transfer Order# Number of items ordered: 1 Number of items complete: 0 Number of items cancelled: 0 Transfer-Date: 02/12/96 Required-Date: 02/12/96 Source Location Destination Location YARDLEY, PA 3 P21 - BENSALEM Freight Factor Basis CST (CST WGT VOL) 2 Received Amt(CST/WGT/VOL) Freight Amount Insurance Transfer Charge 0.00 FIELD: The Transfer Charge is a charge which would be used to reflect the cost of transferring the material from location to location. Both the freight amount and transfer charge amount are included in the FIFO cost for the 24

25 3 EXPLANATIONS OF TRANSACTIONS layers created by the transfer receipt. When multiple items are being received, the freight and transfer charges are prorated over the items based on either the Cost or Weight, depending on the setting of the Freight Factor Basis field. An entry is made on the Item Cost Change Register at the destination location to reflect the difference between the FIFO cost of the material at the source location, and the FIFO cost of the material at the destination, after freight and transfer charges are applied. This allows for journalization of the change in inventory value as a result of the freight and transfer charges being applied to the transfer. For transfers, the system creates a FIFO layer at the destination location corresponding to each FIFO layer which is being decremented at the source location. For example, if a transfer of 20 units takes 10 from one layer and 10 from another layer, the receiving location will have two FIFO layers as well, both with a quantity of 10. The costs on those layers are the original FIFO costs from the source location, modified by any prorated freight or transfer charges as described above. The receiving location's layers are marked with the receipt date and time entered during the receiving process, not the date and time of the source location's layers. If a transfer quantity is undershipped and the difference not returned to the source location, then the system makes a normal FIFO deduction from the source location. If a transfer quantity is overshipped and the source location has sufficient stock in the system to cover the overshipment, the quantity is processed as a normal FIFO transaction. If there is insufficient stock at the source location to cover the overshipment, the system makes an item adjustment and prompts for a SKU cost. This cost defaults to the receiving location's last cost, modified by the unit size, as in order entry, item adjustment, and shipment confirmation. PAYABLES When material is received against a purchase order, it is entered into the system and a value representing its worth is added to your inventory. Sometimes, the value on the purchase order (the expected amount) and the actual value of the received material (the invoice amount) are different. The Material Receipts Reconciliation option in the PAYABLES module allows you to track the discrepancy between these two amounts and to limit the amount of variance that is accepted. MATERIAL RECEIPTS RECONCILIATION When the vendor's invoice is received, the invoice can be reconciled to the actual receiving. The FIFO layers created by the receiving can be updated with any cost differences between the received cost and the invoice cost. If the variance is entered as an item variance, the cost of the individual item is updated to reflect the cost variance. If the variance is entered as a total receiving variance without itemized details, the cost variance is prorated across the items. The system goes to the specific layer which was created by the receiving and updates the FIFO cost on the layer to reflect the cost variance. Next, the system checks to see if any of the quantity has been disbursed (original quantity <> open quantity). If there have been disbursements, the system makes an entry on the Payables Discrepancy Journal indicating the amount of the variance which applies to the quantity which has been disbursed. For example, if the original quantity in a layer is 100, there is a variance of $10, and the open quantity in the layer is 90, the system changes the cost of the layer by $0.10 (10/100), and makes a discrepancy journal entry for $1.00. This entry accounts for the 10 units which have already been disbursed, at a cost of $0.10 each. 25

26 3 EXPLANATIONS OF TRANSACTIONS ITEM-COUNT The ITEM-COUNT module can be used for cycle counting, as well as for complete physical counts. INVENTORY/CYCLE COUNTING The ITEM-COUNT module is used to enter and process inventory counts in the system. The system compares the counts entered to the current stock quantity, and makes adjustments as needed to bring the system's quantity in line with the physical count. The system makes item adjustment entries to account for the differences in stock quantities as a result of a physical inventory or cycle count. If the new quantity as a result of the cycle count is less than the current quantity in the system, there is an item adjustment made to decrease the stock. This adjustment follows the normal FIFO rules for an item adjustment which decreases stock as previously described. This means the decrease comes from the existing layers using the costs associated with those layers. If the new quantity is greater than the current quantity in the system, an adjustment is made to increase the stock. This adjustment filters back into existing FIFO layers instead of creating new ones. The system starts with the oldest layer which is not completely full and adds to that layer until either the entire adjustment is covered, or the quantity in the layer reaches that layer's original quantity. If the layer becomes full before the entire adjustment quantity has been allocated, then the next oldest layer (which has an open quantity of 0), is re-activated and has the remaining quantity placed in it. For example, suppose the FIFO layers for an item are as follows: Loc Date Time Original Quantity Open Quantity Cost 1 05/01/96 09: /04/96 12: /06/96 11: /06/96 12: An inventory count is done, and the quantity counted is 185. The current FIFO layers add up to 165, so 20 is added via an item adjustment. The system looks at the existing layers, and the oldest non-full layer is marked 05/04/96 12:42. There is room in that layer for 10 of the 20 to be adjusted, so 10 are allocated to that layer. The remaining 10 will be allocated to the layer marked 05/01/96 09:30. This re-activates this layer and puts the 10 in open quantity. After the adjustment is complete, the layers look as follows: Loc Date Time Original Quantity Open Quantity Cost 1 05/01/96 09: /04/96 12: /06/96 11: /06/96 12:

27 3 EXPLANATIONS OF TRANSACTIONS The cost associated with this adjustment is (10 X )+(10 X ) = $ ITEM-LIST The ITEM-LIST Inventory Value Reports menu contains the option to print a FIFO inventory value report. FIFO INVENTORY VALUE REPORT The FIFO Inventory Value Report shows inventory as valued according to the FIFO layers. An option allows you to indicate whether to display all the individual layers, or simply to display the weighted average cost for each item. FIFO INVENTORY VALUE REPORT 1 REPORT BY LC (CO RG BR LC) 2 LOC# 1 3 LOC DETAIL (Y N) 4 SEQ VN-PL (VN-PL PL-IT ITEM VN-PR PR-IT PR-VN VN-IT PL-VN) 5 START 6 END ZZZZZZ 7 STOCK ONLY Y (Y N) SALES CLASS LIMITS 8 START 0 9 END 99 PURCHASE CLASS LIMITS 10 START 0 11 END 99 OPTIONS 12 PRINT ZERO ON-HAND Y (Y N) 13 SHOW LAYERS Y (Y N) FIELD: The report can be run in various sequences and can optionally display location detail. The SHOW LAYERS parameter only applies when either running the report by LC (location), or when answering Y to the LOCATION DETAIL parameter. The report can be limited to only those items which have either their stock flag set to Y, or have non-zero on-hand quantities, as well as by sales and purchase classes. 27

28 3 EXPLANATIONS OF TRANSACTIONS FIFO INVENTORY VALUE REPORT 1 REPORT BY LC (CO RG BR LC) 2 LOC# 1 3 LOC DETAIL (Y N) 4 SEQ ITEM (VN-PL PL-IT ITEM VN-PR PR-IT PR-VN VN-IT VS PL-VN) 5 START RUS 6 END RUS STOCK ONLY Y (Y N) SALES CLASS LIMITS 8 START 0 9 END 99 PURCHASE CLASS LIMITS 10 START 0 11 END 99 OPTIONS 12 PRINT ZERO ON-HAND Y (Y N) 13 SHOW LAYERS Y (Y N) A location based report showing the FIFO layers prints in a format similar to the sample that follows. LOCATION 1 PROPHET 21 INC FIFO INVENTORY VALUE REPORT 04/25/96 PAGE 1 POOL ITEM DESCRIPTION UT SIZE ON-HAND-EA FIFO COST FIFO VALUE DATE TIME ORIG. QTY OPEN QTY SKU COST 0 RUS PHILIPS HEAD SCREWDRIVER EA /15/95 08: RUS FLAT HEAD S/D EA /15/96 08: /22/96 08: /06/96 08: /11/96 08: RUS /4" BAND SAW BLADE EA /05/96 08: /03/96 08: /04/96 08: RUS ALL (LARGE) EA /04/95 08: /05/96 08: /07/96 08: RUS ALL (MED) EA /04/96 08: /07/96 08: /22/96 08: RUS ALL (SM) EA /11/96 08: /04/96 08: RUS LARGE HACKSAW EA /01/96 08: /25/96 08: RUS MED HACKSAW EA /09/96 08: /11/96 08: /25/96 08: RUS SMALL HACKSAW EA /01/96 08: GRAND TOTALS