13.2. Costs Setup

Tenant Settings

At tenant level you can select the default material policy that will apply, to all subordinate organizations and warehouses. In the Tenant window, Material Policy field, you can select one of the two options:"LIFO" (first in, first out) or "FIFO" (last in, first out). The material policy determines how stockable products are unloaded from a warehouse (e.g. after processing a shipment or inventory use).

Accounting Schema Settings

The Accounting Schema contains the rules and parameters used to transfer the accounting consequences for each document. The necessary settings are made using the Accounting Schema window, located in the Performance Analysis -> Accounting Rules menu:

• Cost Type - helps differentiate between different costs that need to be tracked. These are user-defined and contain current, future or past costs, etc. In order to define a cost type, open the Cost Type window, located in the Performance Analysis -> Costing menu;

• Costing Method - method used to maintain and calculate costs. The available options are:

  • "FIFO"

  • "LIFO"

  • "Standard Cost"

  • "Average Invoice"

  • Average PO, Last Invoice, Last PO Price;

• Cost Types - cost classification method;

• Cost Levels - determines the level at which the cost is independently maintained:

  • "Tenant" - the costs are maintained at tenant level;

  • "Organization" - separate costs are maintained for each organization;

  • "Warehouse" - separate costs are maintained for each warehouse;

  • "Batch/Lot" - separate costs are maintained for each Lot/Batch (attribute set);

Details in Material Policies.

Product Category Settings

At product category you can define specific costing settings, other than the general setting defined for the accounting schema and tenant.

In the Product Category window, Material Policy field, you can select one of the two options:"LIFO" (first in, first out) or "FIFO" (last in, first out). For example, a product category containing perishable goods can use FIFO material policy while the default method is LIFO.

Also, for a product category, by using the corresponding fields in the Accounting tab, the costing method and costing level defined for the accounting schema can be overwritten. If the product category uses the default settings, it's recommended to leave the fields empty.

Instance cost rules depending on product category settings:

• For those products whose categories have the Batch/Lot Cost Level, once the product has been created there will be no records in the product cost. These will appear once the PO-Receipt match has been posted. The instances from the transactions are always the same as those from the costs.

• For those products whose categories have the Organization Cost Level, once the product has been created there will be records in the product cost for each of the defined Organization (including the nodes), Cost Element = Standard Cost and Costing Method = Standard Cost, with 0 values. The instances from the transactions are not necessarily the same as those from the costs.

• For those products whose categories have the Tenant Cost Level, once the product has been created there will be records in the product cost for the * Organization, Cost Element = Standard Cost and Costing Method = Standard Cost, with 0 values. The instances from the transactions are not necessarily the same as those from the costs.

Cost Elements

The Cost Elements window, located in the Performance Analysis -> Costs menu, allows you to define the different elements that make up costs. You can define any number of cost elements, keeping in mind that some of them must be maintained manually. The following fields are available:

• Name, Description - relevant name and description for the record;

• Element Type - cost element classification method;

  • "Material"

    • Costing Method - for each costing method an element should be defined. Costing method elements are system maintained;

    • Manufacturing Material Cost - cost element used for production;

  • "Burden (M. Burden)"

  • "Overhead"

  • "Resource"

  • "Outside processing"

• Calculated (system maintained):

  • • "checked" - a number of cost elements are calculated automatically by the system and should not be edited (except name changes). These include: Average PO, Average Invoice, LIFO, FIFO, Standard Costing, Last PO, Last Invoice. Each has it's own material element with the corresponding costing method;

    • "not checked" - indicates that the cost elements are not automatically calculated by the system. This type of elements need to be manually allocated to products.

Product Costs

For a product you can define and allocate specific cost elements, representing additional costs. These are not limited to: acquisition costs, burden costs, etc. To use additional costs, first need to define them as "cost elements" and then allocate them to a product

To allocate a cost element to a product, open the Product Costs window, located in Performance Analysis -> Costing. The fields displayed in the window can also be found in the Product window. The following tabs are available:

• Cost Details tab - displays the stock movement transactions that are registered when posting the corresponding documents. Transactions registered here are used to determine the product cost;

• Cost Queue tab - displays product cost instances available for discharge. Depending on the costing method, the system uses the information in this tab to register stock transactions for stock exits;

• Average Invoice History tab - for each stock entry or exit, the system will calculate the average cost and register it in this tab:

  • Current Cost = (Old Amount +/- New Amount) / (Old Qty +/- New Qty);

  • The Reference section indicates the document based on which the transaction was registered and the corresponding date and document type;

• Costing (Old) tab only used as reference and will be removed in a future version;

The Product Costs tab is used to add an element to the product costs. The following fields are available:

• Accounting Schema, Cost Type - determines which cost transactions will be used to calculate this cost element;

• Product, Attribute Set Instance - the product and the attribute set for which the cost element is applicable;

• Cost Element - the cost element that is added to the product;

• Warehouse - the warehouse for which the cost element is applicable;

• Active - indicates that the cost is active. Once added to a product, a cost cannot be deleted, only deactivated;

• Current Cost - this amount is added to the other costs in order to obtain the total product cost;

• Future Cost - available for "Standard Costs" element and is used as a reference amount;

• Current Quantity - current quantity on stock for the product;

• Percent - this amount is multiplied and added to the total costs, in order to determine the final cost;

• Accumulated Amt, Accumulated Qty - total amount and quantity on all material receipts for the product;

• UOM - base unit of measure defined for the product, used to display quantities;

Notes:

• If a shipment contains a resource type product, the cost generated by default costing methods, for the respective line, will be "0". To register costs for a resource, custom elements need to be defined an allocated to the resource;

• The obtained Quantity and Accumulated Quantity are system maintained fields and will be updated when the corresponding invoice and the associated transaction are matched and posted;

Tips and Tricks

• If you are using the standard cost, then you don't need to include other additional costs to the calculation of the COGS (Cost Of Goods Sold). The standard cost assumes that all additional costs have already been included.

• Purchase orders are not necessary for costs if the costing method is either average invoice, last invoice, FiFo, or LiFo.

• For all costing methods other than Standard Cost, you need to match the purchase order (if used), material receipt and vendor invoice.

• SocrateCloud will track all the costs calculated for each product.

• The costs are calculated when you transfer the associate records.

• The additional costs are manually allocated and can be created at any time. If allocated after the system has created/updated the calculated costs, the former will only be included the next time the system redoes the calculations.

• If the unit cost is 0,00 (the first time a product is added to the stock), when posting the receipt, the following algorithm will be used:

  • If the Costing Method is based on the purchase order (average order or last PO price):

    • The standard cost from the Product Costs window.

    • The price from the purchase order associated to the material receipt.

    • The price from the vendor invoice associated to the material receipt.

    • The purchase order price from the Purchasing tab of the Product window.

  • If the Costing Method is based on the invoice (average invoice, last invoice, Fifo, Lifo):

    • The standard cost from the Product Costs window.

    • The price from the vendor invoice associated to the material receipt.

    • The price from the purchase order associated to the material receipt..

    • The purchase order price from the Purchasing tab of the Product window.

  • If the system cannot find usable costs, the posting will generate an error such as: "The current cost could not be found".

• Because the current costs are maintained for each defined costing method, you can change the costing method for each tenant or product category.

• If the production, stock movement or physical inventory influence the current costs then these latter ones will be updated (costs are kept at organization level and the stock movements are realised between organizations);

• SocrateCloud uses the Attribute Set Instance for costs. If an instance is not allocated by an user (via an attribute set) in a purchase order or material receipt, then it will be allocated by the system.