Product Cost Calculation
The Product Cost section contains a history of product cost calculations and a form to run new product cost calculations.
The costing method can be set up in the menu My Company -> Settings -> Company profile -> General Info. The two most common methods used for inventory valuation are AVG (Weighted Average Cost method) and FIFO.
The cost of a product can be calculated at any time, as needed according to the accounting policies of the company.
Before calculating a product cost, make sure that invoices related to incoming and outgoing shipments started before a specific date inclusive are entered to program.
If any of the documents related to the movement of goods is issued, revised or deleted prior to the date of product cost calculation, such product cost calculation will be deleted along with all its journal entries, and the product cost will need to be calculated again.
When a new product cost is calculated, the previously calculated one is saved in the product cost calculation history and assigned a status of “Voided” in the list of product cost calculations. If approved, the journal entry for the previously calculated product cost will be saved. Otherwise, it will be deleted when the product cost is calculated again.
In case a perpetual inventory method is used, the standard cost of a product will be changed for its calculated cost, in case its standard cost was zero prior to the moment of its cost calculation.
Product cost calculation operations run in the background, meaning the user can start one, switch to some other activity, and then go back and see the results. Upon the completion of product cost calculation, a journal entry is generated with a status of “Waiting for approval”.
The product cost calculation history for each product contains the following tabs: Products, Standard Cost Valuation, Price List Markup, and Journal Entries.
The “Products” tab contains a list of products, their quantity as of the date of their cost calculation, the cost of each product, and the stock cost as of the date of its cost calculation.
The “Standard Cost Valuation” tab is available for companies using the perpetual inventory method. It has filters for evaluating a cost variance between the standard cost of a product and its actual cost. By pressing “Update standard cost”, you update the standard cost of a product, and its actual cost is entered in the product card as standard.
The “Price List Markup” tab contains filters for markup analysis (the difference between the cost of a product and its selling price) enabling the user to see if the selling price of a product needs to be changed when its cost changes.
The “Journal Entries” tab contains a journal entry for the current cost calculation. The entry is created with a status of “Waiting for approval”. To review the entry for accuracy, click on its number. A window will open giving you a general view of the entry. By clicking on the magnifying glass icon, you will get a detailed view of the entry by products. Having made sure the entry is correct, click “Approve”.
More information about costing and inventory valuation can be found in our blog post.