Inventory Costs - Terminology

Historically, the term cost has been misinterpreted. Cost may represent your Supplier's price to you or it may be your cost including all landing elements, etc. The purpose of this topic is to define the different costs referenced throughout PointForce Enterprise.

• Purchase Price - is the base Quantity Break prices quoted to you by your Supplier(in foreign currency, if applicable). The Purchase Price is entered in Maintain Purchasing Info (PO13/Pricing Info). This value is the default Purchase Price on the Purchase Order. Supplier discounts are applied to this price.

• Replacement Cost - represents the domestic cost that you will incur the next time you purchase the Product. Replacement Cost is a calculated value that includes Supplier discounts and all Landing Factors (exchange, duty, freight) defined in PO13 for the Product. For example, when your Purchase Price changes or the foreign exchange rate changes, then your cost to purchase the Product also changes. For more details on the Replacement Cost calculation, click here.
  • Replacement Cost is a very valuable figure if you purchase Product from multiple Suppliers. You can see all of the Suppliers for a Product in Display Product Availability (IC45/C4). By comparing the Replacement Costs of all Suppliers (rather than their Purchase Prices), you can accurately determine which Supplier offers the best price.

  • Replacement Cost is used to calculate Selling Prices if the Pricing Method is set to 'Markup on Cost' in Maintain Price Lists (IM18). The Replacement Cost for the Primary Supplier is used.

  • If Commission is calculated on Gross Profit, you may optionally choose to calculate Gross Profit using Replacement Cost instead of Average Cost in Company Control Initialization (CC00/Order Entry).

  • Recalculate Landed Cost (PO17) can be used to recalculate Replacement Costs if a global Landing Factor is changed, for example an Exchange Rate in Maintain Currency Table (CC22) or if a Bulk Landing Factor is changed in Maintain Purchasing Tables (PO09/Landing Factors).

• Landed Cost - represents the domestic cost incurred on any single Receipt. Landed Cost includes Supplier discounts and all Landing Factor elements. This cost is retained by Product/Receipt in IC45/C3, which allows you to view cost fluctuations over past Receipts. You can also print the Purchasing History from Print Purchasing History (PO82).
  The Landed Cost of a new Receipt is used in the calculation of a Product's Average Cost. For more details on calculating the Landed Cost, click here.

• Latest Cost - represents a Product's Landed Cost the last time it was Received. The Latest Cost is for information purposes only and can be viewed in IC45/R1.

• Average Cost - is a calculated value. Each time Stock is received, Enterprise averages the new Receipt with any existing Stock. The Print Inventory Evaluation (IC81) report uses Average Cost to value your Inventory. The Average Cost is the cost assigned to Invoice detail lines, which subsequently interface into the General Ledger for Inventory and Cost of Sales distribution entries, and is used by the Sales Analysis module for Gross Margin Calculations.
  • Calculation of Average Cost:

    The Average Cost method of valuing Inventory will average new receipts with existing stock. Quantity on Hand, Average Cost and Latest Cost are updated by Receipt of stock. Keep in mind that the Latest Cost field is for information purposes only; no evaluation calculations are based on the Latest Cost value.

    For example, you receive 10 units at a unit Landed Cost of $6.00

    	Before	After
    On Hand	10	20
    Average Cost	5.00	5.50
    Latest Cost	5.00	6.00

    Existing Inventory	10	*	5.00	=	50.00
    New Receipt	10	*	6.00	=	60.00
    Total Qty + Value	20				110.00

    $110.00 / 20 = $5.50 (new Average Cost)