Cost In Relation To Inventory Valuation, Sales, Commissions

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Task/Problem Overview

We will examine how cost impacts various processes in Savance Enterprise at a high level. This knowledge base article covers the theory rather than the configuration and execution of tasks related to the topics herein.

Cost & Inventory Valuation

Inventory valuation can be valued using two different methods in SE. Both are explored below.

Valuation Based on Inventory Ledger

Debiting Inventory Ledger (Purchasing)

SE will record the actual cost (Net Column on PO) of items you bring into inventory against the inventory ledger account which should appear on your balance sheet as an asset. Example: You purchase 5 of the same widget at a per-item cost of $5.00. Your inventory ledger will reflect an increase of $25.00 upon receiving. Then you buy 5 of that same item a week later at a per-item cost of $4.00 per widget. Upon receiving, your inventory ledger will be debited an additional $20.00. There is currently no way to change the cost used for this ledger.

Crediting Inventory Ledger (Selling)

The same concepts explained for the debiting of the inventory ledger when bringing material into stock apply when crediting your inventory ledger when selling material. Whatever is in the cost column on the sales order at the time of shipping the material is the unit cost that will be credited against the ledger.

Stock Adjustment

When making a stock adjustment, the FIFO value of the item will be used to debit or credit the inventory ledger accordingly.

Valuation Based on Inventory Valuation Report:

Given that you can’t change the cost that the inventory ledger uses to derive its balance, you may want to leverage our inventory valuation reports. You can generate a valuation report based on a few different costs (FIFO, Average Weighted). This will give you a real-time inventory value based on the cost you want to utilize to derive this value. Please review the documentation on our reporting engine for more information on generating reports.

Cost & Sales Orders

• Can I choose the cost used to calculate order margin & cost of goods sold?:

You can choose which cost to use by default in the cost column of a quote/order at the “Site” OR “Warehouse” level (This is controlled by a site or warehouse setting “Sites->Purchasing->Selling Cost” OR “Sites->WH->Purchasing->Selling Cost”). Just be aware that whatever cost is in the cost column of the quote at the time of order conversion will be used to tabulate your cost of goods sold & will credit your inventory ledger regardless of this setting.

For example, by default you want Standard Cost to be used as the value in the cost column entered on a sales order. Assuming that there is no contract or promotion cost in place and that your salesperson doesn’t override the cost manually, standard cost will be used to calculate the COGS for all line items on that order. However if contract cost is available for one or all line items on an order or the salesperson manually overrides the cost for one or more lines, a mix of standard, override and contract costs would be used to calculate COGS at the time of order conversion.

Cost & Commission

• What cost is commission based on?

If you are paying commissions based on profit, profit will be calculated according to the cost and sell price of each item in the order based on pricing rules and hierarchy. Ultimately whatever cost is specified on the sales order will determine which cost to base commission off of.