Understanding How Cost is Maintained

Cost is recorded as part of the information about the sale as each item is placed on a customer order. This cost is used for reporting and gross profit purposes.

 

The system records two costs for an item in the P-MASTER file. These costs follow the other order information to the sales journal for use in sales reports. The costs recorded at order entry are:

Both the pricing cost and the average cost appear when the item is placed on an order.

 

Pricing Cost (P. Cost)

The pricing cost can be the wholesaler’s replacement cost or the direct buy replacement cost—whichever you specified in the Cost Code box in the Customer Order Entry tab (the wholesaler's cost is the default). The pricing cost also can be the contract cost.

 

The system uses the pricing cost for cost-plus customers to determine a suggested selling price. In addition, if you specify P in the Update Salesperson, Cust, & Item Sales History with Avg or Pricing Cost field in the (LH-Y) Salesperson Parameters screen, the system uses the pricing cost to update the costs in the files C-AUX, I-AUX, and S-HISTORY, as well as the gross profit percentage or margin. Contract cost is used only if the item is on a contract for this customer and if the cost was set in this contract. The pricing cost can be changed during verification.

Note: You can adjust the P cost before you figure cost-plus pricing by using the Up Cost % box in the Item Settings tab. For example, if a customer is assigned the wholesaler cost and the wholesaler cost is $1.00, if you enter 10 in the Up Cost % box the customer’s cost-plus price is figured from $1.10. Customers can be prevented from getting cost-plus pricing on particular items if the Net Price Flag box in the Item Settings tab is set to Y and the Cost Plus if Net box in the Customer Order Entry tab is set to N.

Average/Actual Cost (A. Cost)

This is the average cost of the item at the time of the sale if the order is filled by on-hand quantities. The average cost is a system-generated figure that is designed to give you a more accurate cost. This cost can be different when there are no on-hand quantities. If you specify N in the When No On-Hand, Use Average Cost as Actual Cost in P-MASTER field in the (LG3) Order Entry Pricing Parameters screen, the system uses the pricing cost when there are no on-hand quantities. If you specify Y in the When No On-Hand field in the (LG3) screen, the system uses the average cost when there are no on-hand quantities.

 

However, if the item is backordered and placed on a short-buy purchase order, the average/actual cost is changed to the purchase order cost (the actual cost). This occurs during backorder flushing if you specify N in the Assign Pick Ticket Numbers box in the Purchase Order Entry Short-Buy Options dialog box. If you specify Y in that box, the cost is changed to the purchase order cost when the item is added to the purchase order. The average or actual cost can be changed during verification.

 

Split Lines

If you specify Y in the Split to a Separate Line Partial Backorders field in the (LGØ) Order Entry Parameters screen, you can ensure accurate costs on all orders. The split lines feature comes into play when your wholesaler does not have enough stock to fill an order. The wholesaler might have the item in stock, but not as many of that item as you ordered. Instead of partially filling the order, you can split that line item into two lines: one line with the amount the wholesaler can fill, and the second line with the unfilled amount. Using this option, you can order the remaining amount from a different wholesaler and completely fill the order.

 

When you use the split lines option, the system records the actual cost of the items from each wholesaler. For example, you ordered 200 pens. Half the pens, 100, were in stock, but the other half were backordered. You sent a purchase order for the 100 backordered pens to Wholesaler A. However, Wholesaler A could only fill half that order, 50 pens, so you sent a purchase order for the remaining 50 pens to Wholesaler B. With the split lines feature, you can record the actual cost of the pens, even if they come from different wholesalers and have different costs. If Wholesaler A charges $1.25 per pen, and Wholesaler B charges $1.27 per pen, your cost would only be correct using the split lines feature. If you did not use split lines, all backordered pens would be assigned the system's average cost for these pens. The split lines feature allows you to record the exact cost of items you order.

 

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Understanding Pricing Factors