Inventory Valuation in Franpos
Understanding how your inventory value is calculated is essential for accurate reporting, profit analysis, and tax preparation.
Franpos uses a weighted average cost (WAC) method for valuing inventory. This means we do not use
FIFO (First In, First Out) or LIFO (Last In, First Out). Instead, every time you purchase new stock, Franpos blends the cost of the
existing items with the newly purchased items to calculate a single average cost.
This approach gives retailers a consistent and stable valuation method that avoids cost swings caused by changing supplier prices.
How Franpos Calculates Inventory Value
Whenever you receive new inventory, Franpos:
- Looks at the current quantity on hand and its existing cost.
- Looks at the new purchase quantity and the new item cost.
- Calculates a new weighted average cost for that item.
This updated weighted average cost is then used in:
- Inventory valuation
- Cost of Goods Sold (COGS)
- Profit margin calculations
Why Franpos Uses Weighted Average Cost
- Stability: Smooths out price fluctuations over time.
- Consistency: Provides a single, unified cost per SKU at any given time.
- Accuracy: Helps prevent overstating or understating COGS when prices vary.
- Simplicity: No need to track which specific batch (oldest/newest) an item came from.
Example of Inventory Valuation in Franpos
Let’s assume you have a product with the following details:
- Existing stock: 10 units
- Existing cost per unit: $5.00
You then purchase additional inventory:
- New stock received: 20 units
- New cost per unit: $7.00
Step-by-step calculation
- Current inventory value:
10 units × $5.00 = $50.00 - New inventory value:
20 units × $7.00 = $140.00 - Total units after purchase:
10 + 20 = 30 units - New weighted average cost:
($50.00 + $140.00) ÷ 30 units = $6.33 per unit
After this purchase, Franpos will show:
- Quantity on hand: 30 units
- Cost per unit: $6.33
- Total inventory value: $189.90
This new average cost of $6.33 will be used for all future valuations and sales of this item until the next time you receive stock,
at which point the average will be recalculated again.
Key Takeaways
- Franpos does not use FIFO or LIFO.
- Franpos uses a weighted average cost for each item.
- The average cost is recalculated each time you receive new stock.
- All inventory and profit reports are based on this weighted average cost.