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Costing Method Considerations

Why choose the FIFO Costing Method?

With GoldFinch advanced FIFO Costing Method, we are able to capture real-time and accurate sales and profitability and can still close accounting periods in a timely manner. 

Although Average, Standard, LIFO, and FIFO are all acceptable costing methods for manufacturers and distributors, GoldFinch recommends FIFO for companies who process a substantial amount of transactions, have multiple formula levels, and require transfer orders between multiple warehouses, for the following reasons:

  1. Inventory cost calculations are always accurate and up to date for each of the sales shipments and sales invoices, even when selling inventory before the final vendor invoice is received.  Changes in the inventory valuation due to "timing" only affect General Ledger in the open accounting period, not in the closed accounting periods.

  2. Any mistakes that happen with inventory costs only affect one layer of inventory and the subsequent outbound inventory transactions for that layer; correcting a mistake is a lot faster and less risky.

  3. You will be able to add additional costs (ex. landed costs) to any layer of inventory or to write off costs for obsolete inventory without affecting other layers of the inventory.

  4. A minimal month-end inventory reconciliation effort is needed, as GoldFinch automatically recalculates the "timing difference" to ensure that the inventory General Ledger cost matches with the Subledger Cost.

  5. GoldFinch also tracks inventory costs that have been received but not invoiced, shipped but not invoiced, and output but not costed.

  6. We provide various standard costing fields on the item card with a roll-up capability.

    1. You must populate the Standard Cost field for service items.

    2. It is recommended to populate the Standard Cost field for inventory items.

    3. Read Process Standard Cost Worksheet for Items with Standard Costing Method to learn how to roll-up standard costs or inventory items.

Why not the Standard Costing Method?

Although the Standard Costing method is easy to implement, it does not offer accurate costing for each of the transactions. It takes a substantial amount of manual effort at the period end to decide the "correct" purchase cost for raw materials, and to roll-up standard costs to the parent items.  The job to analyze and reclassify various variances at the month's end is also time-consuming.  In addition, with the Standard Costing method, there is no way to track additional costs or to write off costs to a specific layer of inventory.

 FIFO Costing Method is enabled for all items out of the box.  Contact a GoldFinch consultant if you still prefer the Standard Costing Method.

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