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Inventory Costing & Valuation

From the menu select the inventory tab and Modify Standard Costs. The item code can be entered directly to show the current cost structure, modifications to costs in this screen are reflected in standard cost journals in the general ledger if the link is active in the Company Preferences page - (menu - System Setup tab). Alternatively, to select the stock item to modify the costs for the costing page can be called from the Select Item page - once an item has been selected - a link to the Select Item page is shown on the title bar of all pages. Maintenance and initial entry of cost data is a critical part of the system set up. Simply defining the item header is not sufficient on its own. The cost information entered here is used for both inventory valuation reports and for the general ledger integration stock journals created for the cost of sales, the cost value of stock adjustments, the value of stock received and so on. It can be omitted only if the user is not interested in the value of stock and no general ledger - stock integration is required. It will only be required to be entered on the intial set up of the system if weighted average costing option is enabled from the configuration settings then the cost will be maintained automatically from then on.

Material Cost

If the item is bought in, this field should be the average or expected cost of the item. If the item is manufactured in house, it should be the cost of externally sourced materials plus the total cost of in house manufactured components, from lower levels in the bill. In future this will link to the Bill Of Materials cost roll up. Alterations to this figure affect the value of all stocks of this item held. The system is a standard costing system. When items are purchased the actual purchase cost is compared to this figure and a variance reported to the general ledger account set up in the stock categories record applicable to the item.

Labour Cost

This field should be the total standard cost of labour included in the cost of this stock item. The labour cost is the labour applicable only to this part not to the manufacture of components at a lower level in the bill of materials. The labour cost of componentry would be included in the material cost. Alterations to this figure affect the stock value of all stock held. See comments for Material Cost. In future, this field will be altered automatically on roll ups of cost.

Overhead Cost

This field should be the total overhead to be recovered on the sale of 1 unit of the stock item. Its value affects the value of all stock held of this item, as for labour cost and material cost above. Labour cost, Material cost and Overhead cost are all added together to get the total cost standard cost of a stock item. This total is the value applied to stock valuations. In future, the cost roll up will automatically update this field based on the work centre overhead rates and the quantity of labour at each work centre.

Standard Costing Considerations

Each time a stock item is sold, the cost of sales account (specified by the COGS GL Postings table by reference to the stock category and sales area of the branch) is updated with the total of material cost, labour cost and overhead cost, and the stock value (the account specified in the stock category record) is decreased by the total standard cost.

Actual Cost

The actual cost is the last purchased cost as updated by the system on a purchase. For a manufactured item this is the actual cost as calculated including only efficiency variances (price variances are excluded)

Alterations To Labour Cost, Material Cost or Overhead Cost

Since the system only maintains the one standard cost of items, this is the cost that stocks are valued at. In altering this cost all stock held of the stock item under review will be re-valued or devalued accordingly. If stock journals are being created (the option is set in the company preferences from the System Setup tab) then a system generated journal will be created for the effect on stock value using the general ledger accounts set up for the stock category currently defined for the stock item being changed.

Only transactions entered after the charge will be created at the new cost. Sales analysis will refer to the costs as at the time when the transactions are created.

There is a utility available from the Z_index.php page that allows the sales analysis for a specified period to be updated with the current costs. This utility takes the quantity sold and multiplies the current standard cost by the quantity to re-calculate the cost of each sales analysis record in the period selected - the sales analysis data is updated. This will mean that the general ledger costs will then differ to the sales analysis cost for the period since the general ledger postings are created at the time of invoicing/crediting.