Inventory costing

Every time stock leaves, Upscale has to decide what it cost. That decision drives your cost of sales, your gross margin and the value of stock on your balance sheet.

How it works

Each receipt of stock opens a cost layer: this many units, at this cost, at this location. When stock goes out, it draws from those layers, and the cost of what it drew is what gets charged to cost of sales.

The cost is fixed at the moment the stock moved. Re-pricing an item next month does not change what last month's sales cost you, which is what makes a historical profit and loss stay true.

FIFO

First in, first out. Stock is drawn from the oldest layer first, which is what physically happens in most businesses anyway.

This is the default for every organization. It is the more traceable method: you can see exactly which purchase a sale was costed against.

Under rising prices FIFO charges older, cheaper stock to cost of sales, so it reports a higher margin and therefore a higher taxable profit than weighted average would.

Weighted average

All the stock of an item at a location is treated as one pool at one average cost. Every issue draws at that average, and each new receipt re-averages the pool.

It smooths out price movement, which some businesses prefer for reporting and for pricing decisions.

Batch tracked items

Items tracked by batch use specific identification regardless of the method above. When you pick a batch, you have said exactly which stock is leaving, so its actual cost is the one charged. This is both more accurate and what regulated stock requires.

Choosing, and changing later

The setting is organization wide, with an optional override per item group. This lets you cost spare parts by FIFO and consumables by average, which is a real distinction in some businesses. The method is never mixed within a single item.

Changing method is a dated, one way event, because it is a change of accounting policy:

1. It applies forward from a date you choose. History is never recomputed, since recomputing would restate periods you have already reported and paid tax on.
2. It is refused if a period is locked at or after that date.
3. At the cutover, the open layers of each item are collapsed and re-established. Any change in total valuation posts an adjustment.
4. You see the effect per item and location before anything is written.

In practice the valuation change is nil or a few cents of rounding, because collapsing a pool to its own average preserves its value. You are shown the exact figure either way.

Why FIFO is the default even for existing organizations

At the moment cost layers begin, every item has exactly one layer, holding the stock you have on hand at its current value.

Over a single layer, FIFO and weighted average draw identically. So adopting FIFO at that moment changes no figure at all, restates nothing, and needs no adjustment. It is the one moment the more traceable method is free, and it does not come round again.

The methods only start to diverge from your next purchase onward, when a second layer exists.