Costing: how stock is valued
You will be able to: Compute the moving-average cost after several purchases; Compare moving average, FIFO and LIFO on the same sale; Explain where the cost of goods sold comes from; Set the company negative stock rule and know what it blocks.
- Read not done yet
- Self-check: not taken not done yet
- Lesson complete not done yet
Every unit in stock has a cost, and when you sell it that cost leaves Inventory and becomes cost of goods sold (COGS). The cost method decides which cost leaves. Zeyto supports four settings, chosen per item and defaulted from Settings, Costing: Moving Average, Weighted Average, FIFO and LIFO. Moving Average and Weighted Average are costed the same way, as one running average.
Moving average
After every purchase Zeyto divides the total value of the item by the total quantity. The result is the average cost, and a sale takes stock out at that average. Selling does not change the average. Zeyto keeps one average per item for the whole company, the same on every warehouse row.
FIFO and LIFO
With FIFO (first in, first out) a sale uses the oldest purchase cost still on the shelf first. With LIFO the newest first. Zeyto keeps these cost layers for each warehouse. Take the first two purchases above, 100 at 10 and 50 at 13, and sell 120 units:
| Method | Cost of the 120 units | How |
|---|---|---|
| Moving average | AED 1,320 | 120 x 11.00 |
| FIFO | AED 1,260 | 100 x 10 + 20 x 13 |
| LIFO | AED 1,350 | 50 x 13 + 70 x 10 |
The same stock, three different profits. That is why you choose the method before the item has stock movements, and why you keep it consistent. For FIFO and LIFO items the stock value follows the method, so it can differ from On Hand times the average cost.
Policy settings
- Default Cost Method: new items start on it. Existing items keep their own method; changing the policy never rewrites history.
- Negative Stock: Block refuses a sale, delivery, purchase return, transfer or adjustment that would take a warehouse below zero. Warn and Ignore let it through. A new install starts on Warn.
- A warehouse with Allow Negative set to Yes may go below zero even under Block.
- Selling Before Buying (Provisional Cost): when ticked, goods sold before they were bought are costed with a temporary cost. When you enter the purchase, Zeyto posts a cost true-up document that corrects cost of sales. Nothing already posted is edited.
Try it in the demo
- Open demo.zeyto.app/demo-app/ and sign in with the public demo user (admin, password demoAdmin123).
- Open Settings, Costing and read the Costing Policy card.
- Look at the list below it: each item shows its cost method and standard cost.
- Tick Zero cost only to see items without a cost.
- Open Reports, Stock Balance and Valuation and compare MAvg Cost with Value.
Public demo company, sign in as admin / demoAdmin123. Data refreshes nightly.
- Moving average = total value / total quantity after each purchase.
- A sale removes stock at the average; it does not change the average.
- FIFO and LIFO take layers in a different order and give different COGS.
- Negative Stock set to Block stops stock-outs below zero.
Check yourself
5 questions on this lesson. Not timed, not the exam, and you can try again. Score 60% or more, and read the lesson, to complete it.