First In First Out (FIFO)
Brightpearl uses the FIFO method of valuing inventory. This means that the items added into stock first will be sold first. Financially, this means that for each sale the profit margins are calculated using the value of the oldest item in stock. For example:
10 items are purchased at $10 each, then another 5 of the same item are purchased at $15 each.
- In stock quantity = 10 + 5 = 15 items
- In stock value = (10 x $10) + (5 x $15) = $100 + $75 = $175
Then 12 items are sold. Using the FIFO method the oldest items are removed first, that's the batch of 10 at $10 and then 2 from the second batch at $15.
- 10 x $10 = $100
- 2 x $15 = $30
- Total value removed from stock = $130
- Total value remaining in stock = 3 x $15 = $45
Returned stock (sales credits)
When items are received on a purchase order, you know the cost because the prices are defined by what you pay your supplier. However, when items are received back on a sales credit, the cost of the item will be either:
- Cost price list
The value on the cost price list assigned to the sales credit
- Actual cost using Last Out First In (LOFI)
The actual value of the last of this SKU which was shipped against the parent sales order. This option needs to be enabled in the settings and will apply only to sales credits created after activation.
To use the actual LOFI cost activate it at Settings > Sales > Sales settings.
LOFI costs will be used when the following conditions are met, otherwise the value on the cost price list assigned to the credit will be used:
- Sales credit is cloned from an original sales order directly in Brightpearl, i.e. it does not apply to credits created by channel integrations
- Sales credit was created after the LOFI cost method was activated in settings