Inventory Conversions Factors

Each Inventory Master File item is assigned a material code. For each vendor from which you buy an item, a record is kept of the unit of purchase in which the item is purchased. For example, you might buy an item in a box of 10 from one vendor, and you might buy the same item in a case of 20 from another vendor. When you are entering a conversion factor to change the UOP (Unit of Purchase) into the lowest unit of issue (the amount that is issued to a department), it is important to make sure the conversion is correct.
Example: The UOP for an item is CS/10 (case of 10). Each case contains ten items, which are often issued out individually. Thus LUOI for the item is EA/1. The conversion factor from UOP to LUOI would be 10.
In the system, the on hand amounts are stored in LUOI. In our example, we will start with an on hand figure of 0. If we receive in one box of 10, we are in essence receiving in 10 of the item (10 of EA/1). Since our on hand figure is in LUOI, it will increase amount on hand to 10.
The issue cost for the item is also stored in LUOI. In the example above, if the CS/10 cost $50.00 as purchased from the vendor, the issue cost in LUOI would be $50.00/10. Therefore, the issue cost for EA/1, the LUOI, would be $5.00.
Finally, you may encounter an item which is issued in more than one UOI. Keep in mind that for this item, you will still only have one LUOI. In our example, we may also wish to be able to issue a case at a time. Our UOI would be CS/10. In order to determine the on hand and issue cost in this UOI, we need a conversion factor from the LUOI to this UOI. In our example, the conversion factor from the LUOI, EA/1, to this UOI, CS/10, would be 1*10, or 10. The issues cost for this UOI is the conversion factor time the issue cost (10*$5.00) or $50.00.
If this item is issued in additional UOI, besides CS/10, the conversion factor from the LUOI would be calculated in the same way. Then you can determine the cost to issue in the UOI. Only one UOI, whether it is the LUOI or another UOI, can be marked as the default UOI. The default UOI should be the one that is used most commonly.