Inventory Valuation

📍 Where can I find this module?
Main menu > Inventory Management

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1. Introduction #

Inventory valuation allows you to know the financial value of the goods held by the company at any given time. Kafinea automatically calculates this value with every inventory transaction, using the Weighted Average Unit Cost (WAUC) method.

Who is this guide for? #

• Logistics Managers / Warehouse Staff: Understanding How Inventory Movements Affect Valuation
• Accountants / Management Controllers: Leveraging Historical Price Data for Financial Closings and Analyses
• CFOs: Understanding Valuation Methods and the Rules That Apply

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2. Understanding CUMP Valuation #

Principle #

The WAC (Weighted Average Cost) recalculates the average price of each product every time it is received into inventory:

Prix unitaire moyen = Valeur totale du stock / Quantité en stock

Example:

Key points: Incoming inventory affects the average price; outgoing inventory is valued at the current average price (the CUMP does not change when inventory is issued).

Physical inventory and available inventory #

Kafinea distinguishes between two concepts:

• Physical inventory: the actual quantity on hand in the warehouses
• Available stock: physical stock minus reserved quantities (for example, quantities reserved for an order currently being prepared)

The valuation is calculated based on the physical inventory. The available inventory is displayed for informational purposes only.

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3. Which documents affect the valuation? #

The valuation is automatically recalculated when the following documents are validated:

3.1 Receipt (Inventory Receipt) #

When you receive goods from a supplier, the receipt:

• Increase the quantity in stock
• Add the value of the received goods to inventory
• Recalculate the CUMP

3.2 Delivery Note (Stock Out) #

When you deliver goods to a customer, the delivery note:

• Decrease the quantity in stock
• Removes the corresponding quantity (from the current CUMP) from inventory
• The CUMP remains unchanged

3.3 Stock Transfer #

When transferring goods between warehouses:

• The transfer is valued at the current CUMP
• The CUMP remains unchanged (it is simply being relocated)

3.4 Supplier Invoice (Additional Costs) #

Incidental costs (shipping, customs, insurance, etc.) can be allocated to product batches using the allocation wizard. These costs:

• Increase the value of inventory without changing the quantity
• Adjust the CUMP upward

Example: You receive 100 units at €10 each (inventory value = €1,000, CUMP = €10). You allocate €200 in shipping costs to this batch. New value = €1,200, new CUMP = €12.

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4. Multi-currency management #

If your business deals with multiple currencies, Kafinea automatically handles the conversions:

Exchange rates are automatically applied on the date of each transaction. The valuation is calculated simultaneously in the main currency and in the valuation currency.

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5. Batch tracking #

If your products are managed by batch, the valuation is calculated separately for each batch. This means that two batches of the same product may have different CUMPs if their purchase prices or allocated costs differ.

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6. View the valuation history #

6.1 View history #

The inventory price history is accessible via the Inventory Price History module. This module automatically records a snapshot with each transaction, containing:

• The date of the transaction
• The product and batch in question
• Quantity in stock (physical and available)
• The value of inventory (physical and available)
• The CUMP unit price

6.2 View history #

Each line in the history reflects the valuation status following a specific transaction. By reviewing the lines in chronological order, you can track changes in the CUMP and the inventory value.

Note: This module is read-only. Records are created and deleted automatically by the system. You cannot edit them manually.

6.3 Using the history for closing entries #

To obtain the inventory value as of a specific date:

1. Filter the history by date (last entry before or on the closing date)
2. Filter by product or batch if necessary
3. The " Physical Inventory Value " column shows the value to be used

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7. Allocate additional costs #

7.1 When should the allowance be used? #

Use this allocation when you receive a invoice that includes costs that must be included in the cost of goods: shipping, customs duties, handling, insurance, etc.

7.2 Accessing the allocation wizard #

1. Open the invoice containing the expenses to be allocated
2. Click on the "Additional Cost Allocation" wizard
3. Select the product batches to which the fees should be allocated
4. Confirm the allocation

The allocated costs are immediately included in the CUMP calculation for the relevant lots.

Important: Allocations can also be made from supplier balances, for example, to correct a previous allocation.

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8. Special case: products from production #

When a finished product is received into inventory from a Production-type location, its value is not based on a supplier purchase price. Instead, it is calculated based on the total cost of the raw materials used to manufacture it.

Example: To manufacture 10 units of the finished product "Wooden Table," you use:

• 20 sheets at €5 each = €100
• 40 screws at €0.10 each = €4
• Total materials = €104

The unit cost of the finished product will be: €104 / 10 = €10.40 per unit.

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9. Standard selling price #

In addition to inventory valuation, Kafinea can automatically calculate the selling price of standard products based on supplier quotes. This process is described in detail in the User Guide – Standard Products.

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10. Sample Workflow #

Purchase Cycle #

1. Supplier order → you place an order
2. Receipt form → goods arrive → inventory and valuation are updated
3. Supplier invoice → if there are additional charges, allocate them using the wizard → the CUMP is adjusted

Sales Cycle #

4. Customer order → Your customer places an order
5. Delivery note → goods are shipped → inventory decreases, valued at the current average cost

Internal transfer #

6. Transfer request → you are moving inventory between warehouses → the CUMP remains unchanged

Accounting close #

7. Viewthe inventory price history to see the inventory value on the date you want

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11. Frequently Asked Questions #

The CUMP for my product seems incorrect #

The CUMP is recalculated with each transaction in chronological order. Check:

• Ensure that all delivery receipts are properly approved
• That the prices on the delivery notes are correct
• That any additional costs have been properly allocated

Can I manually adjust the valuation? #

No. The price history is managed automatically by the system and cannot be modified manually. If an error is found, correct the source document (receipt, invoice, etc.) and the valuation will be recalculated.

How are currencies handled? #

Valuation is calculated simultaneously in two currencies: the primary currency of your instance and the valuation currency (default: USD). Exchange rates are automatically applied on the date of each transaction.

Do transfers between warehouses affect the CUMP? #

No. A transfer is simply a physical move. The value and CUMP remain unchanged.

How do you factor shipping costs into the cost of goods sold? #

Usethe additional cost allocation wizard from the invoice that includes shipping costs. Allocate them to the relevant product batches. The CUMP will be automatically adjusted.

What is the difference between physical inventory and available inventory? #

Physical inventory refers to the quantity actually on hand in the warehouse. Available inventory is the physical inventory minus reserved quantities (for example, for orders currently being prepared). Valuation is based on the physical inventory.

Do inventory adjustments affect valuation? #

Transfers to and from stock adjustment locations are not included in the CUMP valuation calculation.

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Related references 🔗 #

• Inventory movements
• The products
• Supplier credit notes