FIFO Valuation
Use
The FIFO valuation method enables you to realistically valuate your material inventories. FIFO (First In, First Out) assumes that the oldest acquisitions are the first to be used. The inventory value is therefore calculated based on the most recent acquisitions.
The FIFO value is calculated from the acquisitions relevant to FIFO.
On the selection screen (transaction FAIB03), you specify the period for which you want to revaluate the inventory. The receipt quantities are totaled starting with the specified period until the ending inventory is reached. The associated receipt values are totaled. The last value to be added is calculated proportional to the last totaled quantity.
The total of these receipt values is the FIFO value.
Prerequisites
You have implemented Inventory Accounting.
Features
FIFO valuation can be used for different purposes:
· Listing the FIFO values of selected materials
The system calculates the FIFO values of the specified materials. The result is a list showing the valuated inventory quantity, the FIFO value, and the FIFO price.
· Updating the FIFO price
You can specify whether the FIFO price should be updated to the price table.
· Tolerances
In some cases the inventory of material to be valuated is greater than the total of the receipt quantities. The reason may be that not all receipts were relevant to FIFO or that the material was received a long time ago.
You can define how the system should handle such cases:
¡ The calculated FIFO price is applied to the entire inventory to be valuated.
¡ The system searches for an alternative value based on the difference between the inventory and the total of the receipt quantities:
§ Material price
§ Price of last FIFO valuation
§ Recalculation of the FIFO price: valuation using a base value (the difference between the inventory and the total of the receipt quantities is valuated with the price of the oldest available receipt).
¡ The system does not valuate the material. An error message on the material is logged.
Define the tolerance intervals by entering percentages.
Example
The inventory quantity of a material is 1500 at the end of the fiscal year. The following receipts relevant to FIFO were recorded in the different periods:
Receipt |
Receipt Quantity |
Receipt Value |
Receipt Price |
Document of 1/15 |
100 |
1000 |
10.00 |
Document of 2/16 |
200 |
2050 |
10.25 |
Document of 3/17 |
50 |
525 |
10.50 |
Document of 4/18 |
150 |
1525 |
10.17 |
Document of 5/19 |
100 |
1050 |
10.50 |
Document of 6/15 |
250 |
2600 |
10.40 |
Document of 7/16 |
300 |
3300 |
11.00 |
Document of 8/17 |
200 |
2250 |
11.25 |
Document of 9/18 |
150 |
1650 |
11.00 |
Document of 10/19 |
200 |
2350 |
11.75 |
Document of 11/20 |
400 |
4600 |
11.50 |
Document of 12/15 |
300 |
3600 |
11.67 |
Total |
2400 |
26400 |
|
The following table shows how the FIFO value is calculated:
Receipt |
Quantity |
Value |
Totaled Quantity |
Document of 12/15 |
300 |
3500 |
300 |
Document of 11/20 |
400 |
4600 |
700 |
Document of 10/19 |
200 |
2350 |
900 |
Document of 9/18 |
150 |
1650 |
1050 |
Document of 8/17 |
200 |
2250 |
1250 |
Document of 7/16 |
250 |
2750 |
1500 |
Total |
1500 |
17100 |
|
The price of the material based on FIFO valuation is therefore 17100 : 1500 = 11.40.
To compare: If the ending inventory of the prior year were zero and no goods issues took place in the current fiscal year, the moving average price of this material at the end of the fiscal year would be 26400 : 2400 = 11.00.