To ensure that a business is profitable, the business must be able to effectively measure and control its costs. To evaluate the available inventory and cost of goods sold, many businesses use the weighted average cost (WAC) method as a reliable measuring of costs and for inventory valuation. Proper valuation of costs is the base for proper determination of profit or loss.

In FirstBIT ERP, the cost costs of inventory including finished goods and work-in -progress, costs of goods sold, costs of services are calculated automatically by the Month-End Closing service tool. 

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• Calculate Direct Costs: This option enables calculation of weighted average costs of the ending inventory and cost of goods sold.
• Allocate costs: This Generally, this option is used if your company enabled the Production module to account for production of the goods. The option enables allocation of the overheads to finished goods and work in process for to finished goods by using the Cost Allocation Methods with Cost of Goods / Services selected as allocation type. Also, this stage can be used if your company defined custom allocations to allocate some specific costs to the inventoryspecific expenses to work in progress or cost of goods sold or any other allocations specific to your business.
• Calculate Actual Costs: If selected, this option enables calculation of actual costs of finished goods. Also, it enables updating of costs of inventories, sold goods , and services based on the average direct costs and the allocated costs.

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For more details on allocations refer to Overview of Cost Allocations.

Calculation of Actual Costs

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