Inventory valuation methods

The unit price of inventory items is tracked by using the average, First In First Out (FIFO), Last In First Out (LIFO), or standard valuation method.

Average

The unit price is the average cost of all purchased items.

FIFO

The unit price is the cost of the first purchased item.

LIFO

The unit price is the cost of the last purchased item.

Standard

You set the unit price.

FIFO and LIFO methods use inventory batches. The batch in which an item was ordered is used to determine the cost of the item.

Over time, the same inventory item can be purchased at varying costs. These costs, the purchase date, and the quantity that is purchased must be evaluated when the issue cost of the item is calculated. With the average method, the cost value is the average of the costs of all of the items. With the FIFO and LIFO methods, the cost is calculated based on the quantity that is requested and the quantities in the batches. With the standard method, the user sets a cost value for the item.