Incorrect Cost Increases in FIFO Costing Method in Business Central

Incorrect Cost Increases in FIFO Costing Method in Business Central

When using the FIFO (First In, First Out) costing method in Business Central, understanding how costs increase for inventory items is crucial for accurate financial management. A common issue arises when there’s a mismatch between units of measure (UOM) or incorrect quantity entries.

Tracing Cost Increases

If you suspect an issue with a cost increase, you need to trace the transaction where the cost is being calculated. A useful tool for this is the Value Entries on the item card in Business Central. Here, you can review every transaction affecting the value of the item and check if the UOM, quantity, and costing amounts were correctly filled in.

Example Scenario: UOM Mismatch

Imagine the base UOM for an item is square feet, but there is an alternative UOM (e.g., box), where one box equals 1000 square feet. If a user creates a purchase order for $1000, but accidentally enters the wrong UOM (e.g., square feet instead of boxes), this will cause incorrect costing calculations, potentially "blowing up" the costs in the system.

By tracing transactions in the Value Entries section, you can pinpoint where the error occurred and correct it to ensure that the costing remains accurate.

Conclusion

When dealing with increasing costs in the FIFO costing method, always ensure that UOM, quantity, and costing are aligned properly. This will help you avoid discrepancies in your financials and inventory valuation. If you suspect an issue, use the Value Entries to trace and resolve the problem.