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Microsoft Dynamics AX (Archived)

Microsoft Dynamics AX - costing methods

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Posted on by Sahar Saqeb User Group Leader

Hello Everyone,

 Would someone please help me better understand the difference between date weighted average costing, and weighted average costing?

 

I understand LIFO, and Standard cost, and am getting confused between these two methods noted above.

Can someone kindly help and provide examples to aid in the learning process?

 

Cheers

Sahar

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  • diana g Profile Picture
    diana g 689 on at
    Re: Microsoft Dynamics AX - costing methods

    When calculating the cost price of a sale, date weighted average will only look at purchases prior to the actual date of sale.  

    When you use weighted average it will calculate the cost price based on all purchases up to the time you run the inventory close. So, if you run the inventory close monthly, you are effectively calculating the average cost for the month and then applying that to all sales in that month.

    Date weighted average is more accurate because it only includes the purchases that really contributed to selling that item.

     

  • Sahar Saqeb Profile Picture
    Sahar Saqeb User Group Leader on at
    Re: Microsoft Dynamics AX - costing methods

    Thanks for the clarrification.

    How is LIFO calculated in comparison to FIFO? I understand what this stands for but not how this is calculated within AX. FIFO is first in first out approach which takes the first cost or price unit and sells at this first price which was entered into inventory. Does LIFO do the opposite and take the last cost entered and sells at this last price which was entered into inventory?

     For e.g. if I sell 200 loaves of bread on monday @ $1.00 and decide to sell another 200 loaves of bread on tuesday @ $1.50, does LIFO then take the cost sold on Tuesday to sell another 100 loaves on bread on wednesday?

    I understand FIFO would take the price sold on Monday (which was the first entered price @ $1.00 and then sell at this price) but what would LIFO do?

     

    Can some body please help me?

     

    Cheers

    Sahar

  • diana g Profile Picture
    diana g 689 on at
    Re: Microsoft Dynamics AX - costing methods

    It's the standard way that Fifo and Lifo costing works. Take this example...

    • Buy an item on Monday for $10.
    • Buy a second of the same item on Tuesday for $15.
    • Then sell one of them on Wednesday for whatever sales price you sell to the customer, that is irrelevent to the cost of the sale. 

    If you are using fifo the cost price for the sold item is calculated at $10. If you use Lifo the cost price for the sold item is calculated at $15.

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