Methods of calculating warehouse prices according to Circular 200 with examples

Methods for calculating the cost of goods and inventories according to Circular 200 include the following methods: average, specific identification and FIFO (first in, first out).

I. Legal basis

• Circular 133/2016/TT-BTC;
• Circular 200/2014/TT-BTC;
• Inventory accounting standards: VAS 02, IAS2.

II. Methods of calculating warehouse prices according to Circular 200

According to Circular 200/2014/TT-BTC, methods for calculating inventory prices include:

• Weighted average cost of goods sold;
• Ex-warehouse price by specific identification method;
• Warehouse price according to FIFO method or first in first out.

In addition to the three main methods above, Circular 200/2014/TT-BTC also mentions the retail price method, applicable to some specific industries such as retail and supermarkets.

Note:

• Goods and materials need to be monitored and their import, export and inventory values ​​determined separately for each item;
• The company can apply different pricing methods to different groups of goods and materials, for example, goods apply specific pricing method, auxiliary materials apply average pricing method for the whole period. However, it is necessary to ensure the principle of consistency – that is, only one pricing method is applied to one group of goods during the year;
• The choice of pricing method is decided by the company, depending on management requirements, business response capabilities, and at the same time being suitable to the characteristics of the goods and materials that the company trades.

III. Calculating the cost of goods sold using the weighted average method

The value of goods and materials is determined by the average value of goods and materials imported during the period and in stock at the beginning of the period divided by the total quantity of goods and materials purchased and in stock at the beginning of the period.

Depending on the time of calculating the average value of goods exported from the warehouse, the method of calculating the weighted average export price is divided into the average method at the end of the period (usually monthly) and the average method after each import.

1. Weighted average method at the end of the period

The final weighted average warehouse delivery order (usually every month) is determined by the total value of each type of goods and raw materials in stock at the beginning of the month and imported during that month divided by the corresponding total quantity of goods and raw materials in stock at the beginning of the month and imported during the month:

➨ Advantages: 

Easy to do, calculate, just calculate once at the end of the month. 

➨ Disadvantages: 

• Unable to determine the warehouse price at the time of the transaction in the month because the warehouse price can only be calculated at the end of each month after having enough warehouse data, using the weighted average method at the end of the period. Leading to lack of accounting information when making economic decisions;
• Because there is a single warehouse price for a type of goods or raw materials, the weighted average method at the end of the period will not reflect the price fluctuation of each warehouse sale in case there is a fluctuation of the beginning of month inventory price and the unit price of imports during the month.

➨ Apply:

From the advantages and disadvantages mentioned above, the method of calculating the average inventory price for the whole period is applicable to businesses with a large number of items and little price fluctuation.

2. Weighted average method after each entry

After each import from purchase or production, the unit will recalculate the value of the goods and inventory. Therefore, the value of each export will be calculated as follows: 

➨ Disadvantages: 

The weighted average method requires recalculating the ex-warehouse price after each import. Therefore, the amount of calculation will increase significantly when goods are frequently imported into the warehouse.

➨ Advantages: 

Compared with the weighted average method at the end of the period, the weighted average method after each import can determine the unit price of the warehouse at every time the transaction occurs in the month. The unit price of the warehouse also shows more clearly the fluctuation of the warehouse price in the case of large fluctuations in the warehouse price at the beginning of the period and the warehouse price during the period.

➥ Apply:

For businesses that often have few product types, relatively fluctuating commodity prices, and low import and export volume, it is necessary to monitor detailed import and export prices to make business decisions.

For example:

Truong Phat Stationery Company Limited has the following transactions in June 2022 for 500gr/bag of camphor as follows:

• Early June, inventory quantity: 300 bags – inventory unit price: 150,000 VND/bag – inventory value: 45,000,000 VND;
• June 2: Import 200 bags into warehouse – import unit price: 160,000 VND/bag, total import value 32,000,000 VND;
• June 3: Import 100 bags into warehouse – import unit price: 165,000 VND/bag, total import value 16,500,000 VND;
• June 4: 300 bags shipped;
• June 15: Imported 400 bags – import unit price: 160,000 VND/bag, total import value 64,000,000 VND.

The cost of each time of delivery using the weighted average method at the end of the period and after each import is as follows:

Weighted average after each import:

➥ Total value of item code is 77,000,000 VND, inventory quantity is 500;

➥ Total value of item code is 93,500,000 VND, inventory quantity is 600;

➥ Warehouse value on June 4

Inventory value = 46,750,000 VND, quantity = 300 bags.

➥ Inventory value on June 15 is:

Average weighted assets at the end of the period:

➥ Warehouse value on June 4 = 300 x 157,500 = 47,250,000.

➥ Inventory value is: 157,500 x (300 + 200 + 100 + 400 – 300) = 110,250,000 VND.

VI. Calculating the cost of goods sold using the specific identification method

The specific costing method determines the unit price of the goods sold based on the corresponding import value of that item, down to each imported item or batch. 

➨ Advantages:

This method helps to determine the most accurate cost of goods sold corresponding to the revenue of goods sold. The unit price of goods sold can be determined at the time of the transaction. 

➨ Disadvantages:

Applying this method is very difficult for companies with many types of goods and regular import and export quantities. It requires the company’s accountant to track in detail each batch or import and export item code.

➨ Apply:

Companies with few product codes, low import and export volume, high product value, accounting and warehouse systems can track import and export goods in detail down to each batch/product code.

For example:

On May 1, 2022, PMD Import-Export Joint Stock Company exported 30,000 ceramic bowls and plates, belonging to 3 import lots with details as follows:

• 15,000 units imported on September 2, 2021 – import unit price: 10,000 VND/unit – import value: 150,000,000 VND;
• 10,000 units imported on June 1, 2021 – import unit price: 15,000 VND/unit – import value: 150,000,000 VND;
• 5,000 bowls imported on January 2, 2021 – import unit price: 12,000 VND/piece – import value: 60,000,000 VND.

➥ So the total value of inventory on May 1, 2022 is: 

150,000,000 + 150,000,000 + 60,000,000 = 360,000,000 VND.

V. Calculate the cost of goods sold using the FIFO method – first in first out

This method is based on the assumption that goods that are imported first are exported first, the quantity of goods imported first is sold before the quantity of goods imported later is sold. The remaining inventory will be from the most recent imports.

➨ Disadvantages: 

Unable to accurately reflect the cost of goods according to the market at the time of release from the warehouse, especially for items with high price fluctuations, the workload increases significantly when the unit has many import/export activities.

➨ Advantages:

Using the first-in, first-out method, accountants can calculate the warehouse price at the time of the transaction, thus ensuring the timeliness of accounting data. In addition, for items with a tendency to decrease in price, it will help reduce corporate income tax costs because the cost of goods at the time of warehouse release is higher than the remaining pricing methods.

➨ Apply:

Businesses with perishable goods such as cosmetics or food, the price of the item on the market is stable or tends to decrease in the short future.

For example:

In March 2022, ABC Company Limited had the following trading activities with pork sausages:

• Early March, no more inventory;
• March 2, imported 500 units – import unit price: 10,000 VND/unit;
• March 3, imported 400 units – import unit price: 12,000 VND/unit;
• March 4, 200 units shipped;
• March 5, 400 units shipped;
• March 6, imported 300 units – import unit price: 14,000 VND/unit;
• March 7, 600 units shipped.

Unit price and warehouse value of each warehouse delivery are determined as follows:

• March 4, shipped 200 units imported on March 2;

Export price: 10,000 VND/piece – value: 2,000,000 VND;

• On March 5, shipped 300 units imported on March 2 and 100 units imported on March 3;

Export price: (300 x 10,000 + 100 x 12,000) / 400 = 10,500 VND/piece – export value: 4,200,000 VND.

• On March 7, 300 units imported on March 3 and 300 units imported on March 6 were shipped from the warehouse;

Export price: (300 x 12,000 + 300 x 14,000) / 600 = 13,000 VND/piece – export value: 7,800,000 VND.

VI. Frequently asked questions about the method of calculating the cost of goods sold