General Information about FIFO
What Is the FIFO Principle?
First In First Out or the FIFO principle means that the goods should be consumed in the same order as they were reported to stock. When parts are manufactured, it is assumed that the incorporated parts are picked from stock according to FIFO so that the manufactured parts' (M/S-parts) can be valuated according to FIFO price. That is, the price is based on the incorporated materials' Actual purchase price (also called Final price). The manufactured parts' post-calculation can then be valuated according to FIFO price.
When arrival reporting a purchase order, a log record will be created in the inventory log where the purchase price is loaded. When the purchaser follows the stipulated work methods and updates the prices on the purchase order in accordance with the supplier's order confirmation, then the price of the purchase order and the invoice will not differ. In that case, the price at arrival is also the final price. When the supplier invoice is linked, the invoiced price might differ from the price at arrival. That is why the invoiced price will be loaded to the inventory log as well and will then be counted as Final price.
Getting Started
The follow-up features added to MONITOR 9.0 require new database tables including new data. After the update you cannot calculate and perform price calculation on M/S-parts whose manufacturing orders were in progress when the update to version 9.0.X was made.
This means that price calculation on inventory movements (M/S-parts) only can be made on manufacturing orders registered after the update to MONITOR 9.0.X. The valuation of P-parts is not affected by these new database tables. P-parts can still be valuated at FIFO in the inventory value list. The supplier invoice will be linked to the purchase order as usual to obtain a final price.
Before you can start using FIFO, the following basic settings must be configured:
Settings in the System
Before you can start using FIFO, the following settings must be configured:
If you use management accounting, you must also configure settings regarding this:
FIFO and Management Accounting
Work Method when Starting Using FIFO
After running the scripts, a final price should have been created on all arrivals for which the related supplier invoices have been linked. This means that manufacturing orders registered after the update can be followed-up on and calculated in the Price Calculation - Inventory Movements procedure. In the Historical Inventory Movements procedure, list type FIFO balance, you can find parts that in spite of this has no final price. In this list you can see on which transfers to stock the part balance is based. In the Price Adjustment - FIFO procedure you can manually enter a final price for transfers to stock without such a price. If you work in parallel with the procedures Historical Inventory Movements (list type FIFO balance) and Price Adjustment, you can quickly and easy enter a final price for the purchased parts' transfer to stock in order to create bases for FIFO valuation.
The procedure Price Calculation - Inventory Movements is used to calculate FIFO price on stocked and manufactured parts. The result in the Price Calculation - Inventory Movements procedure can only be saved for manufacturing orders that have been final reported (status 9) and where all incorporated parts have final prices. In the list you can clearly see which parts that do not have a final price. The procedure is an excellent help when creating bases for a correct FIFO valuation.
Possibility to distribute expense invoices on purchased parts
Possibility to distribute expense invoices such as freight, insurance costs, packaging, and customs costs on supplier invoices. This way the purchased parts will obtain the best possible FIFO value. See Distribute Expenses – FIFO.
Follow-up Features
Follow-ups can be made in the following procedures:
Follow up on FIFO in Historical Inventory Movements
Follow up on FIFO in Inventory Value List
Follow up on FIFO in Price Change Log
Follow up on FIFO in Invoicing Log
Follow up on FIFO in Management Accounting
Miscellaneous
In the Undo Reporting procedure you can undo a reporting made on a manufacturing order. You should undo incorrect reportings. Otherwise, the FIFO value might be incorrect. In this procedure, any incorporated material will be returned to stock with the same price as it had when it was withdrawn from stock.
If a return (a negative reporting) is registered in one of the reporting procedures, the material will be returned to stock at standard price. The following procedures are reporting procedures; Recording Terminal, Operation Reporting, Comprehensive Reporting, and Material Reporting.
The procedures Undo Arrival Reporting and Undo Delivery Reporting also take the FIFO value into consideration.
The procedures normally used to set a final price and date for the parts are Register Supplier Invoice (P-parts) and Price Calculation - Inventory Movements (M/S-parts).
FIFO Flow
Here you will see an example of a basic FIFO flow.