Help: Help with inventory valuation calculations

Detritus

Sel-requested Deactivation
Joined
Sep 25, 2016
Posts
1,084
Avatar Name
Detritus the Troll
Business finance is not really my thing, so I'm asking for guidance here with some calculations. I'm trying to get a better understanding of how to determine costs of both goods produced and how to valuate returned mats and "bonus" items.

To simplify things, let's make up a bp: Noob Knife BP

Requires: 10x Ingots
Produces: Noob Knife

Ingot value is 0.10 each, and let's say I've purchased some stock of them at 0.11 ea.

Let's say I do 5 clicks, and have additional input of 1 ped of residue with a cost of 1.02.

Input:
50x Ingots; cost 5.5
Residue; cost 1.02

Output:
3x Noob Knife: 3.0
5x Ingots: 0.5
1x Noob Sword BP: 0.01
Residue: 0.5

So now I need to add these items into my inventory, but I'm trying to determine what their "cost" is. I can see a few different ways of determining this, and I'm not sure what makes the most sense or falls in with best practices.

1. Roll all input costs into the products, and valuate all other output at 0 cost. This would give the 3 knives their highest cost @2.173 ea; but I am returning the recovered mats, residue and bonus items to inventory at a cost of 0, so using them in the future will be cheaper or selling them will be more profitable.

2. Roll all input costs into the products, and valuate all other output at TT value, which I then need to subtract from the input costs to prevent imbalance. This would produce the cheapest knives @1.837 ea, and the net effect on other items would be as though I purchased them at 100%. The biggest problem with this method is when the output exceeds the input, such as with a global. Due to the subtraction in the cost function, this could end up with negative costs for the products, which doesn't make any sense and really screws up financial calculations.

3. What I'm leaning towards is take #1 but return the reclaimed mats back to inventory at their original cost (treat them as unused items), which also need to be subtracted from the input costs. This would produce slightly cheaper knives @2.007, my original mats remain unchanged in terms of costs, and any additional output items are treated as a zero-cost bonus. I believe this will work because to my knowledge mats are only returned on partial successes (e.g. you can't global them), so you will never get back more mats than you started with, thus the input cost will never become negative.


This is my naive thought process, is there a better way to do this?
 

Alukat123

Stalker
Joined
Jun 20, 2017
Posts
1,778
Avatar Name
Son Alukat Goku
4. sum up the MUs of all materials, add the tt-lost (5% in the long run) add it on top of the knifes TT and then devide by amount of knives.

(a+b+c*d*(1-0,95)+e*f)/f

a = total mu mat 1
b = total mu mat 2
c = amount of clicks
d = tt per click
e = tt per crafted item
f = amount of items crafted

in your case:

(0,5+0,02+5*1*(1-0,95)+1*3)/3 = 1,256 PED each

this neglects the MU of returned items however.
If you want to factor in the MU of the returned item however, then you will need to figure out the MU-part value of returned mats.
 
Last edited:

Detritus

Sel-requested Deactivation
Joined
Sep 25, 2016
Posts
1,084
Avatar Name
Detritus the Troll
4. sum up the MUs of all materials, add the tt-lost (5% in the long run) add it on top of the knifes TT and then devide by amount of knives.

(a+b+c*d*(1-0,95)+e*f)/f

in your case:

(0,5+0,02+5*1*(1-0,95)+1*3)/3 = 1,256 PED each

I appreciate the input, but this formula seems a bit flawed from an accounting perspective.

Aren't you creating a ledger imbalance? In the given example, your equation essentially removed 2.752ped (42%) of the total input cost - where does that go?

I'm not sure I understand adding in the output value of the product to the cost function, that seems fiscally incorrect. The cost should be invariant to the output value, should it not?

It also still doesn't really answer my question about how to valuate the returned materials and bonus items.


I'm not trying to strictly adhere to GAAP, but I am trying to follow general principles to accurately account for my inventory. I think your equation seems more useful for projections than valuations, but again this is definitely not my forte.
 

Alukat123

Stalker
Joined
Jun 20, 2017
Posts
1,778
Avatar Name
Son Alukat Goku
Aren't you creating a ledger imbalance? In the given example, your equation essentially removed 2.752ped (42%) of the total input cost - where does that go?

I'm not sure I understand adding in the output value of the product to the cost function, that seems fiscally incorrect. The cost should be invariant to the output value, should it not?
Well, the TT cost for the 5 clicks is 5 PED , you'll loose 5% of those ped, in the formula it's expressed by c*d*(1-0,95). Those 5% are costs caused by tt-return losses. That's why it get added on top of the absolute MU paid.

The TT of materials consumed on the success is inside the tt value of the item, that's expressed by e*f.

The leftover TT of materials are not part of the cost equation, as they're not consumed.

Is that what you meant with the 2.752 PED?
 

Detritus

Sel-requested Deactivation
Joined
Sep 25, 2016
Posts
1,084
Avatar Name
Detritus the Troll
Well, the TT cost for the 5 clicks is 5 PED , you'll loose 5% of those ped, in the formula it's expressed by c*d*(1-0,95). Those 5% are costs caused by tt-return losses. That's why it get added on top of the absolute MU paid.

The TT of materials consumed on the success is inside the tt value of the item, that's expressed by e*f.

The leftover TT of materials are not part of the cost equation, as they're not consumed.

Is that what you meant with the 2.752 PED?

No, I mean financially you have an imbalance. The total input cost is 6.52. You are giving the products a cost of 1.256 each, or a total cost of 3.768. You have managed to make almost half of your input cost vanish, which doesn't make sense to me. From an accounting perspective that value can't just disappear.
 

Alukat123

Stalker
Joined
Jun 20, 2017
Posts
1,778
Avatar Name
Son Alukat Goku
No, I mean financially you have an imbalance. The total input cost is 6.52. You are giving the products a cost of 1.256 each, or a total cost of 3.768. You have managed to make almost half of your input cost vanish, which doesn't make sense to me. From an accounting perspective that value can't just disappear.
Now i see what you meant. Exactly, i calculated the costs per unit. The 2.752 PED is the TT of materials not consumed which are still in your inventory or gonna get paid back later in a global/hof. Because they're not consumed or they'll be paid back later, they're not part of the cost equation.
 

Detritus

Sel-requested Deactivation
Joined
Sep 25, 2016
Posts
1,084
Avatar Name
Detritus the Troll
Now i see what you meant. Exactly, i calculated the costs per unit. The 2.752 PED is the TT of materials not consumed which are still in your inventory or gonna get paid back later in a global/hof. Because they're not consumed or they'll be paid back later, they're not part of the cost equation.

But even then it doesn't work out. In the example I received 0.5 worth of unconsumed mats, not 2.752. You are adding/removing values that simply don't add up correctly... maybe it works for you, but I am looking for accurate financial transactions not an estimate based on perceived future "pay back".

Still interesting to hear how others are going about it though.
 

Alukat123

Stalker
Joined
Jun 20, 2017
Posts
1,778
Avatar Name
Son Alukat Goku
But even then it doesn't work out. In the example I received 0.5 worth of unconsumed mats, not 2.752. You are adding/removing values that simply don't add up correctly... maybe it works for you, but I am looking for accurate financial transactions not an estimate based on perceived future "pay back".
actually, the 2.752 should be splitted this way:
0,5 PED ingot + 0,5 PED residue + 1,751 PED future multiplier payout + 0.01 PED BP.

my formula flattens out bad tt-return runs and very good tt-return runs.

The problem with your approach, like you've stated under 2.), is flactuating TT-returns.
If you got bad tt-return run, then you'll end up with such a high MU, that nobody may buy the item.
At the same time, when you get a good tt-return (>100%), then you may have negative costs and could basically give the items away for free.
This can get very messy.
That's why i started using the formula that flattens TT-return flactuations and it worked quite well over the years.

Anyway, gl.
 

Count0

Alpha
Joined
Sep 26, 2006
Posts
634
Society
ROUA
Avatar Name
Don Roberto Roberto
... maybe it works for you, but I am looking for accurate financial transactions not an estimate based on perceived future "pay back".

Still interesting to hear how others are going about it though.
BUT you already have an inbalance!
Input:
50x Ingots; cost 5.5
Residue; cost 1.02

Output:
3x Noob Knife: 3.0
5x Ingots: 0.5
1x Noob Sword BP: 0.01
Residue: 0.5

Total input 6.52
Total output 4.01

This is 2.51 peds tt loss (inbalance), due to MA system, and yes most of it will be paid later in the form of global and hofs.
You can not apply STRICT fiscal / accounting rules.

It is exactly what Alukat said, a bad tt-return run, and his formula help you flatten out the bat tt-return and good tt-return runs to be able to calculate costs for final product.
 

mastermesh

Mutated
Joined
Apr 21, 2007
Posts
15,502
Location
FOMA SHOP # 22
Society
Freelancer
Avatar Name
Maria Mesh
This is my naive thought process, is there a better way to do this?
Buy ingredient A at 101%. Sell ingredient A at 102% or More. Done. This is the 'better way.' Of course, make sure the auction fee or shopkeeper decay fee is below 1% for item in question. Also keep in mind minimum markup in a shop is tt+1 (TT+1.02 to the buyer due to tax), and that shopkeeper decay is 10 pec per sell on top of that if sale is done via shopkeeper in a shop.

Also make sure you have a buyer lined up because otherwise ingredients that you are trying to sell for more than what auction price is likely ain't gonna sell too fast. (better aim would be like buy at 105%, sell at 110% or more, etc.)
 
Top