Choosing the Right Inventory Costing Method in Sage Intacct: Get It Right the First Time
Ask ten accountants which inventory costing method is best, and you’ll get ten different answers — because the right choice genuinely depends on your business. But one thing is certain: making that choice without fully understanding the options is a risk no company can afford. Here’s your guide to getting it right in Sage Intacct.
Understanding Costing Methods for Sage Intacct Inventory
Effective inventory management is about more than just tracking quantities—it’s about understanding the true cost of your goods. In Sage Intacct, inventory costing methods play a critical role in how businesses value stock, calculate margins, and report financial performance. Choosing the right costing method can directly impact profitability, tax reporting, and decision-making.
Why Costing Methods Matter
Inventory costing determines how the cost of goods sold (COGS) and remaining inventory value are calculated. These figures flow into your financial statements, influencing gross profit, net income, and even strategic decisions like pricing and purchasing.
Different industries—and even different companies within the same industry—may benefit from different costing approaches depending on product type, price volatility, and operational complexity.
Costing Methods in Sage Intacct
Average Cost:
- The total value of an item is the weighted average of the acquisition cost of all the units on hand.
- The unit cost is calculated based on the total value and total quantity across all purchase cost layers.
- As units are sold, the COGS is posted using the current calculated average unit cost.
FIFO (First In, First Out):
- Assumes the first items purchased are the first ones sold.
- The cost of goods sold is based on the cost of the earliest purchase layers.
- Ending inventory is valued at the cost of the most recent purchase layers.
LIFO (Last In, First Out):
- Assumes the last items purchased are the first ones sold.
- The cost of goods sold is based on the cost of the most recent purchase layers.
- Ending inventory is valued at the cost of the earliest purchase layers.
Standard Cost:
- Uses a pre-determined, fixed unit cost for each item.
- The standard cost is set when the item is created and cannot be changed, unless you use price lists and manually update them every time the cost changes.
- Variances between standard and actual costs are tracked separately.
Final Thoughts
Inventory costing isn’t just an accounting technicality—it’s a strategic lever that influences how your business measures success. Sage Intacct provides the flexibility to align costing methods with your operational needs, ensuring both accuracy and efficiency.
By understanding FIFO, LIFO, Average Cost, and Standard, you can make informed decisions that improve financial visibility and support long-term growth.
If you’re implementing Sage Intacct Inventory or reevaluating your current setup, now is the perfect time to ensure your costing method is working for—not against—your business. This is critical to select the correct costing method at the time of setup, if you select the wrong costing method you can not simply edit the item to update to the correct costing method in Intacct. To correct the costing method you will need to create new item numbers for every item that has an incorrect costing method, and then move all inventory from the old item number to the new item number. This creates additional work and is not an easy or quick process to get updated in your system.
