Costing and stock rules that affect production
You will be able to: Explain how component cost is chosen; Predict whether a run is blocked by negative stock; Read the effect of cost methods on the finished item's cost.
- Read not done yet
- Self-check: not taken not done yet
- Lesson complete not done yet
A production run is only as accurate as the stock costs behind it. Settings ▸ Costing holds the rules: the Default Cost Method for new items, whether stock may go below zero, and each item's cost method and standard cost.
Which cost leaves stock
Each component leaves the warehouse at its current cost: the running average of what it cost you, or the first-in or last-in cost if that item is set to FIFO or LIFO. The finished item then enters at the total cost of those components, so its unit cost is that total divided by the quantity made, and its average cost updates.
Negative stock
| Negative Stock setting | Run that would take a component below zero |
|---|---|
| Block | Refused, and the message names the line |
| Warn | Allowed after a warning |
| Ignore | Allowed |
Even with Block, a warehouse whose Allow Negative is Yes may still go below zero. Costing changes never rewrite history: movements and entries already posted keep their figures.
Zero-cost components
If a component has no cost, the finished item will carry too little. In Settings ▸ Costing tick Zero cost only to find items with no cost, open the item and enter its Standard Cost in Pricing & Costing before producing.
Correcting mistakes
- Wrong quantity produced: record a Stock Adjustment (Inventory ▸ Adjustments). Production entries cannot be amended or cancelled.
- Wrong recipe: change the BOM for the future; earlier runs keep what they posted.
- Wrong date: the date must be in an open fiscal year, so a closed year refuses the run.
Try it in the demo
- Open Settings ▸ Costing in the demo and read the Negative Stock options and Default Cost Method.
- Pick an item in the Costing list and read its cost method and standard cost.
- Work out the average cost after a second purchase at a different price.
Public demo company, sign in as admin / demoAdmin123. Data refreshes nightly.
- Components leave at average, FIFO or LIFO cost; the finished item enters at the total.
- Block refuses a run that would go negative unless the warehouse allows negative.
- No labour or overhead is added.
- Fix mistakes with Stock Adjustments.
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.
1. You hold 10 kg flour at AED 3.50 and buy 10 kg at AED 4.50. What is the average cost per kg?
2. With average cost AED 4.00 per kg, what is the flour cost of a run using 6 kg?
3. A warehouse holds 4 kg of flour, a run needs 6 kg and Negative Stock is Block. What happens?
4. With Negative Stock set to Warn or Ignore, what is true for the same run?
Select all that apply.