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FIFO - Two locations to enter unit cost?

There is no explanation as to why there are two locations to enter unit cost & how to use them properly. I want FIFO to work & I'm afraid if I use the wrong unit cost box, it won't.

 

I started with 10 of an item at $.70/each. I want to add 10 more at $.55/each. I enter the original 10 under stock received & $.70 unit cost. I click done & go back to the main "edit item" page. I can enter the cost again. When I don't & I close out to my inventory list, nothing shows in the "unit cost" column. So, I put $.70 again.

 

Now I want to enter 10 more at $.55. I do the same thing with stock received & entering $.55. When I go back to the main "edit item" page it says $.70 as the unit cost.

 

Questions:

- Is the $.70 on the main page because I still have those items in stock? And when I sell those 10 items, will it change to $.55 because I am now selling those items?

- If I want FIFO to work, should I not enter anything in unit cost on the edit item page?

- What is the point of the two boxes, how do I use them correctly, & what should I see in order to make sure it is working correctly?

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Square

Re: FIFO - Two locations to enter unit cost?

Best Answer

Hi @GLG , happy to help.

 

Cost lots are created using the cost entered when you receive the item and will use the FIFO methodology. In the manage stock tab that opens when you click the stock field or "edit per location", unit costs are associated with a specific location. In the Item edit table, you are defining a default cost across locations. 

 

Going point by point, trying to break down each question individually: 

  1. Why is $.70 on the main create/edit item screen? Unit Cost defined on this screen will act as a default cost. It will pre-fill the cost field in the manage stock tab, or for the line item when it is added to a purchase order. You can update the default if you want to. If you update the cost in a purchase order, it will update the default cost. 
  2. If cost is set to something other than the default on a receive, which cost is used? The cost entered on the receive. One way to see the cost assigned to an inventory adjustment is to go to Items > Inventory Management > History. You can see cost in the Total Cost column, or the per item cost by clicking on the row to see the detail. 
  3. Will FIFO work when using a default cost? Yes. 
  4. How do I make sure it's working correctly? Take a look at the Inventory Management > History page. If you find you need to update a cost on a past receive, you can do that by editing the purchase order, or by editing the cost in the Inventory Management > History line item detail. 

Let me know if you have additional questions.

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Square

Re: FIFO - Two locations to enter unit cost?

Best Answer

Hi @GLG , happy to help.

 

Cost lots are created using the cost entered when you receive the item and will use the FIFO methodology. In the manage stock tab that opens when you click the stock field or "edit per location", unit costs are associated with a specific location. In the Item edit table, you are defining a default cost across locations. 

 

Going point by point, trying to break down each question individually: 

  1. Why is $.70 on the main create/edit item screen? Unit Cost defined on this screen will act as a default cost. It will pre-fill the cost field in the manage stock tab, or for the line item when it is added to a purchase order. You can update the default if you want to. If you update the cost in a purchase order, it will update the default cost. 
  2. If cost is set to something other than the default on a receive, which cost is used? The cost entered on the receive. One way to see the cost assigned to an inventory adjustment is to go to Items > Inventory Management > History. You can see cost in the Total Cost column, or the per item cost by clicking on the row to see the detail. 
  3. Will FIFO work when using a default cost? Yes. 
  4. How do I make sure it's working correctly? Take a look at the Inventory Management > History page. If you find you need to update a cost on a past receive, you can do that by editing the purchase order, or by editing the cost in the Inventory Management > History line item detail. 

Let me know if you have additional questions.

View Best Answer >

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Re: FIFO - Two locations to enter unit cost?

Your answer does help. Thank you. I have a follow up question about FIFO & negative inventory though.

 

I was in negative inventory for an item because received stock was not entered in time. But the cost of the item went up & I don't know how/if Square reconciles this.

 

Going off of the above numbers say $.70 was the default cost.  Two items sold at with that cost. Inventory now shows "-2" & stock history shows "2 sold, $1.40". However, those items actually cost $.80 because shipping increased. I enter two items in stock received at a cost of $.80 each to bring the inventory balance to zero.

 

Will the cost of those two items be reflected in my profit margin report as costing $.70 or $.80

 

If those items will NOT show an $.80 cost, what is a workaround so I can be sure my profit margin numbers, etc. are accurate?

 

Hopefully that's it for now but I find so many things so confusing & Square doesn't give great tutorials. 😞 

 

Thanks for your help.

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Admin

Re: FIFO - Two locations to enter unit cost?

Hey @GLG thanks for asking and this is a great question. So, first, to answer your "unit cost" question regarding what those items were sold as, if they were received at a $.70 unit cost, they will be sold with a $.70 unit cost. Also, the new items you received with the $.80 unit cost will then be sold with the new cost, only after the first items with the $.70 unit cost have been sold. If there are technically no items left, the items will sell with their default unit cost (you can view that in items) or the last unit cost applied to them. You can fix what unit cost the items were sold under by changing their unit costs under Inventory History on your Square Dashboard - you can search for the items in question, click on their actions (that they were sold), and edit the unit cost to be $.80 if you need them to be.

 

This happens because the system believes that the items that were sold were still a part of the first shipment. I would say that the only way to avoid items going into the negative like this would be to receive the items as soon as they leave the shipment box. This will make sure that only items received can be sold and then it is impossible to "oversell" an item into the negative.

 

Do you use purchase orders? This can really help save time and allow you to receive a shipment in a matter of minutes from the App or the Dashboard. The time consuming part will be to create the purchase order, but once it's pending "received" then you can count the product, make sure it's all there, and receive the PO in a matter of minutes to go right to selling them.

 

I hope this makes sense and please let me know if you have any other questions!!

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Re: FIFO - Two locations to enter unit cost?

@elaine_p I do not use purchase orders because I don't know what my inventory will be until the night before inventory is on the floor. I sell plants. I hand pick inventory from what is in stock at the local grower on Tues afternoon. It's about 200 plants & anywhere from 20 - 40 varieties. Labels need to be printed (sometimes new product entered) & the plants need to be labeled & on the floor by 10am Weds morning. I simply don't have the time to enter inventory each Tues night along with everything else I need to do that evening & how early I have to get up Weds.

 

Regarding inventory history: When I go to inventory history, I can not adjust the cost of sold inventory, whether it is positive or negative. I can only adjust the cost of stock received. This does not help with negative inventory. Using the running example, I had -2 of an item, which Square assumed cost $.70. I "stock received" 2 items & put the cost at what it actually was, $.80. But Square will not allow me to override the cost of inventory sold so those items are $.10 short of actual cost.

 

How am I supposed to reconcile this? This problem exists for dozens of items & some items had their price increase more than once. Is there a workaround you can suggest? And now that I know this, I know my COG for last year are off by potentially thousands of dollars.

 

Thank you

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Square

Re: FIFO - Two locations to enter unit cost?

Hi @GLG

 

If you check back in reports today, did the COGS update for the adjustment you made for the items with negative inventory? I'm curious if this could be because we don't update the report until the end of the day. I'm double checking by reproducing a similar scenario on my end and will check back tomorrow. 

 

Re: purchase orders - you may be able to combine the effort of label printing (assuming you are using Square) and purchase orders. In the Item Library, when you go to actions > print labels, there is a button that allows you to "Select from Purchase Order." If you entered in all the line items and costs in a purchase order, you could then select all of the items for label printing so you don't have to enter them again. 

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Re: FIFO - Two locations to enter unit cost?

Great news! I was going through my inventory & I finally found some clear numbers from negative inventory to tell me what was going on. Square does, in fact & thank god, correct past purchases to reflect a change in cost. 

 

Here is a screenshot:Screen Shot 2020-03-04 at 6.55.48 PM.png I explain so others with the same question can understand how Square resolves the issue. The transaction order is flipped from oldest to newest because it's easier to understand.

 

4 received = Total cost $56, $14 cost/each, quantity 4

5 sold = Total cost $71, $14.2 cost/each, quantity -1 (The first four plants cost $14/each but the 5th plant, reflected as -1, should be a cost of $15.)

1 received = Total cost $15, quantity 0

 

Originally, the "5 sold" were calculated at $14/each for a total of $70. After I entered the "1 received" with a cost of $15 to make up for the negative inventory, Square adjusted the "5 sold" to $14.2/each. The extra $.20/each equals the $1 difference between the original $14 cost/plant & the new $15 cost for the 5th sold plant.

 

The same thing happened with another plant whose price went down when replacing negative inventory. The cost of previously sold plants was $3.23 instead of $3.25.

 

In sum, I can "stock receive" negative inventory at a different cost than recorded in the item's COG. Square will adjust the past costs by distributing the cost difference between a previous item or items sold. 

 

YAY! 

 

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Square

Re: FIFO - Two locations to enter unit cost?

Wonderful to hear it worked as you expected, and thank you for sharing it back to the thread!

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Admin

Re: FIFO - Two locations to enter unit cost?

Thanks for stepping in @elaine_p 🙌 

 

@GLG - I hope this helps! 

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