DC1 Help Centre 12.0

Cost components

Purchase prices

Standard net purchase price (Item file)
This is the Standard net purchase price without landed costs but with possible main supplier discounts deducted, with the exception of limit dependent discounts as these are dependent on the purchase volume. This standard net purchase price, together with any standard landed costs, is used to automatically calculate the Standard cost for purchased items. See more details in the Costing methods section.

There are different ways in which this field can be calculated and updated:

Manually calculate and enter the standard net purchase price for each item.
Automatically calculate and update the standard net purchase price for a range of items via the Work with calculations and Update item file menu options.
Automatically calculate and update the standard net purchase price for a specific item via the Update cost from purchase price function.
Automatically calculate and update the standard net purchase price for a range of items via the download functionality in the Item classification definition.

Actual net purchase price (Purchase order line)
The Actual net purchase price is a calculated but not displayed price on the purchase order line based on the retrieved or manually entered purchase price for the item. This calculated actual net purchase price is without landed costs but with all purchase order discounts deducted including any limit dependent discounts related to the ordered quantity on the purchase order line.

This actual net purchase price, together with distributed and discrete landed costs, is used to calculate the actual cost value for the purchased and received goods. See more details in the Costing Methods section.

The Actual net purchase price is calculated as follows:

+ Purchase price on the purchase order line
– Purchase order line discounts (derived from Discount amount or %)
– Purchase order discount (possibly driven by Order value discount limits)

Landed costs

Landed costs can be defined for the additional costs such as import duty and freight charges that are incurred when purchasing goods. These are initially defined in the Landed cost type table. Such details include:

Mandatory:

“From” point (e.g. Supplier)
“To” point (e.g. Warehouse)

Optional:

“How” (i.e. Manner of Transport)
“By” (i.e. Shipping Agent)
“Item” (e.g. Commodity Code)

Along with this key information details are defined for how the value is calculated. This can be by a fixed amount per unit of weight or volume or by a percentage of the purchase price plus any other landed costs or simply by a fixed value.

The landed costs defined in the Landed cost type table may be used for the costs to be automatically calculated when a purchase order line is created. This depends on whether or not landed cost is required for the Terms of delivery defined for the purchase order and also of course if the characteristics of the purchase order line match defined keys in the Landed cost type table.

Standard landed costs are created from the above details using key values related to the Main supplier defined for the item and the Main cost warehouse defined in the Item file, alternatively the Main warehouse defined in the DIS control file (i.e. when no specific main cost warehouse is defined for the item). Standard landed costs are created per warehouse using the warehouse and the supplier valid for the warehouse as key values when Cost per warehouse is active.

The standard landed costs are calculated and stored in the Landed cost details file using the Refresh landed costs menu option. This option is also to be used following any changes to key values in the landed cost details file or in the following basic data related to landed costs:

Item/Basic information:
Commodity code
Item shipment group
Item/Inventory information:
Main supplier
Item/Unit:
Gross weight
Net Weight
Gross volume
Net volume
Item/Supplier:
Manner of transport
Item/Warehouse:
Warehouse main supplier
Item/Inventory control information:
Supplied “From” warehouse
Business partner/Basic details:
Country
Business partner/Addresses:
Country
Shipping agent
Supplier:
Manner of transport

Quantity in stock

The definition of Quantity in stock concerning stock valuation in DC1 is the goods owned by the company running the system. The following quantities build up and represent subsets of the Quantity in stock:

Stock on hand (“On hand”)
Goods dispatched not yet invoiced (“Disp not invoiced”)
Work in progress goods on service orders (“Service WIP”)
Goods in transfer between warehouses (“On IR order”)

Costing methods

Four costing methods are available:

Average
Standard
FIFO
Serial number

The default costing method, i.e. average, standard, or FIFO, to be used throughout DC1 Distribution is defined in the DIS control file by the use of a Cost type field.

The default costing method can however be overridden at item level for various reasons, such as:

The purchase prices vary between the different suppliers from where the goods are purchased, which may make Average cost as a preferred costing method when the default costing method has been setup as Standard cost.
The need to react to changes in the costs of raw materials by having a different cost type for these, such as FIFO, as opposed to the finished products, which may be at Standard cost.
Serial number costing may be suitable in situations:

where each service object can be the result of a customer specific “machinery sale” having a unique configuration with different installation costs and therefore need to be valued individually.
where used equipment are returned, reconditioned and sold and where the same item can have a different cost depending upon its condition.
for very expensive items, where it must be possible to do profit analysis on each individual item.
Note: Serial number costing can only be defined at item level.

A Cost type field is provided at item level to define the costing method to be used for the item. Any of the four costing methods defined above may be used with the obvious limitation that the item must be under serial number control before serial number costing can be used.

The DIS control file and Item file settings control which values are transferred to the General Ledger (G/L).

Note: Average cost and FIFO cost are continuously calculated and recorded in the background in parallel with Standard cost or Serial number cost when one of the latter is selected as actual costing method.

Average cost

Basic calculation

A new average cost is calculated on item/warehouse level if Cost per warehouse is active in the DIS control file. Alternatively the new average cost is calculated on item level if Cost per warehouse is not active.

The calculation is performed as follows each time a transaction is processed whereby items are received into stock. There is a list of events where the calculation is performed in section Cost Affecting Events.

New Average Cost = [(Trans-cost * Trans-qty) + (Average * Qty in stock)] / (Trans-qty + Qty in stock)

Where by:

Trans-cost = Transaction cost
Trans-qty = Transaction quantity
Average = Current average cost
Qty in stock = Quantity in stock

In the above formula:

The value for “Transaction cost” varies depending upon the type of transaction being processed:

If this is a Purchase order reception, then it is the actual net purchase price from the purchase order line plus the sum of the landed costs.
If this is a Non-conforming stock to normal stock movement, then it is the cost from the non-conformity certificate.
If it is a Transit stock to normal stock movement and Separate cost handling is active (in the DIS control file), then it is the transit average cost in the “from” warehouse.
If this is an Internal replenishment order reception, then it is the item cost in the “from” warehouse at the time of reception plus landed costs.
If this is a Manufacturing order reception, then this is the actual pre-calculated manufacturing order cost per stock unit.

The value for “Transaction quantity” varies depending upon the type of transaction being processed:

If this is a Purchase order or an Internal replenishment order, then it is the received quantity; or the approved quantity if quality control is used.
If it is a Stock movement, then it is the quantity being moved.
If it is a Manufacturing order, then it is the received quantity.

The value for the “Current average cost” is retrieved from:

the Item file if Cost per warehouse is not active.
the Item/Warehouse file if Cost per warehouse is active.

The “Quantity in stock” (see the definition in the Costing components section.)

If Cost per warehouse is not active (i.e. Cost per item), the quantity is the Quantity in stock in all warehouses.
If Cost per warehouse is active, the quantity is the Quantity in stock in the warehouse into which the goods are received.

Average cost calculation at Item level

The average cost at Item level can also be used as a basis for sales pricing when Cost per warehouse is active. As a result the average cost at item level is continuously and simultaneously re-calculated as follows:

Scenario

Calculation

Items are received on a Purchase order (the Actual net purchase price plus landed costs are used)

[(Actual net purchase price + Landed costs) x Quantity received/approved)
+ (Current item average price x Quantity in stock in all warehouses)]
/ (Quantity received/approved + Quantity in stock in all warehouses)

Items are received on a BtB Transit purchase order and Separate cost handling is specified in the DIS control file (the Actual net purchase price plus landed costs are used)

[(Actual net purchase price + Landed costs) x Quantity received/approved)
+ (Current item Transit average price x Total quantity in Transit stock in all warehouses)]
/ (Quantity accepted + Total quantity in Transit stock in all warehouses)

Items are moved from Non-conforming stock to normal stock (the Non-conformity certificate cost is used)

[(Non-conformity certificate cost) x Quantity moved)
+ (Current item average price x Quantity in stock in all warehouses)]
/ (Quantity moved + Quantity in stock in all warehouses)

Items are moved from Transit stock to “normal” stock and Separate cost handling is specified in the DIS control file (the Transit average cost held against the “from” warehouse is used)

[(“From” warehouse transit average cost) x Quantity moved)
+ (Current item average price x Quantity in stock in all warehouses)]
/ (Quantity moved + Quantity in stock in all warehouses)

Items are received on an Internal Replenishment Order (the item average price at the time of issue plus landed costs are used. See the Internal replenishment orders (IRO) section).

[(Item average price at time of issue + Landed costs) x Quantity received/approved)
+ (Current item average price x Quantity in stock in all warehouses)]
/ (Quantity received/approved + Quantity in stock in all warehouses)

The following functions in the system do not affect the Average cost at item level, i.e. the average cost is not updated:

Manual changes of average cost at item/warehouse level
Normal manual stock movements between warehouses
Manual inventory transactions
Supplier invoice matching in DC1 Financials

Standard cost

Purchased items

The standard cost in the Item file or Item/Warehouse file for a purchased item is calculated as follows:

Standard cost = Standard Net Purchase Price + Sum of the Standard Landed Costs

The Standard cost of a purchased item cannot be manually maintained at neither item nor item/warehouse level, it is automatically calculated when either the Standard net purchase price or one of the Standard landed costs are changed. For more information on standard landed costs see the Landed costs sub-section.

The standard net purchase price may be manually maintained or updated using the Work with calculations and Update item file menu options.

Variances

Bookkeeping transactions are created for any variances between the Standard net purchase price and the Actual net purchase price when goods are received into stock. Bookkeeping transactions are also created for any variances between the Standard landed costs and the Actual landed costs incurred during the purchase of an item at goods reception.

The same variances for purchase prices and landed costs are booked also at the reception of an internal replenishment order with the difference that the standard cost is used as Actual net purchase price in the calculation. The standard cost used is retrieved either from the Item file or the Item/Warehouse file depending upon the Cost per warehouse setting in the DIS control file.

Manufactured items

The standard cost for a manufactured item may be manually entered or calculated within the DC1 Manufacturing application if this is active.

If DC1 Manufacturing is active the cost is based upon the Item Structure together with a Cost Model.

The Item Structure contains a Bill of Material detailing the materials used in the manufacture. It also contains a Bill of Routing, listing the operations performed to manufacture the item and tools and fixtures used for the operations.

A cost model which contains the various elements used to build the cost such as material cost, labour cost, material overheads and tool costs; nearly 50 system defined elements are supplied. Any number of user defined cost models may be created.

The cost may be calculated in two ways:

Firstly by using the Product costing online option. In this option the cost for a single item is calculated on-line, the cost of each element in the selected cost model is displayed together with a total standard cost. The standard cost for the item can be updated by the use of a function key from this display. The cost is updated on item/warehouse level for the warehouse attached to the structure. If no warehouse is attached the cost is updated for all active warehouses for the item.
Secondly by a Product costing batch job submitted from the Work with batch jobs menu. This option allows the costs to be calculated for all items in all warehouses or to be calculated for selected items and warehouses. The option can also be run either in simulation mode or update mode.

FIFO

When items are received into stock a dated and time-stamped record is created in the FIFO file containing details of the transaction. When items are issued from stock or when sales order lines are invoiced a standard routine is called that calculates the cost based on the transactions in the FIFO. See more details in the Cost retrieval events.

This routine uses the total Quantity in stock (see the definition in the Quantity in stock sub-section) for the actual warehouse at the time of the transaction together with the quantity being issued.

It works “backwards” through the file reading each FIFO record for the actual warehouse starting with the latest (newest) records in the file.
It subtracts the transaction quantity in each FIFO from the Quantity in stock until it finds the earliest (oldest) “active” FIFO transaction record that still has stock remaining and that totally or partially covers the Quantity in stock.
The cost from this transaction is used, however if there is not enough stock on this earliest (oldest) transaction to cover the quantity being issued then the costs from one or more later (newer) records are used depending on the FIFO transaction quantity and the issued quantity.

To illustrate the principle used in the above routine the table, further below, depicts the FIFO records that have been created for an item/warehouse over a period of time (24 July 2008 to 02 April 2010) and at this moment there is a quantity of 12 still remaining in stock in this warehouse.

The stock value for the 12 units in stock is then represented by the last 3 records in the table below (record 5-7, qty 6+5+1=12) as records 1-4 have already been “consumed”. Adding the values backwards the total stock value is 6×132.37 + 5×131.58 + 1×133.52 = 1585.64.

The value of the goods being issued from stock is calculated from the oldest to the newest active FIFO record. This is illustrated in the text Quantity in stock = 12.

Record number	Transaction date	Cost Each	Transaction Quantity	Transaction Stock Value	Find oldest active FIFO record to use	Issue Quantity = 3	Issue Quantity = 9
1	24 July 2008	129.67	5
2	24 July 2008	129.68	5
3	20 February 2009	129.68	10
4	04 January 2010	131.58	10
5	18 February 2010	133.52	4	1×133.52=133.52	1-4 = -3 Remaining active qty = 1	1×133.52=133.52	1×133.52=133.52
6	22 February 2010	131.58	5	5×131.58=657.90	6-5=1	Issue remainder = 2 (i.e. 3-1=2) 2×131.58=263.16	Issue remainder = 8 (i.e. 9-1=8) 5×131.58=263.16
7	02 April 2010	132.37	6	6×132.37=794.22	12-6=6		Issue remainder = 3 (i.e. 8-5=3)
					Quantity in stock = 12
				1585.64		396.68	793.79

Example 1

Example 1
Quantity in stock in actual warehouse = 12 Issued quantity = 3
1. Backward process by which to find the oldest active record	a. Start with the newest active record (no 7) and subtract the transaction quantity 6 from Quantity in stock 12 -> Remainder = 6. b. As the remainder is a positive value then continue backwards with the next active record (no 6) and subtract the transaction quantity 5 from Quantity in stock remainder 6 -> Remainder 1. c. As the remainder still is a positive value then continue backwards with the next active record (no 5) and subtract the transaction quantity 4 from Quantity in stock remainder 1 -> remainder -3. d. A negative or zero remainder value indicates that this is the oldest active record.
2. Forward process to calculate the value of the issued quantity	a. The remaining quantity in the oldest “active” FIFO records is the remainder quantity 1. b. Calculate the first portion of the value of the issued quantity starting with the remainder quantity (=1) using the cost from the oldest “active” record (no 5) 1 x 133.52 = 133.52 c. Reduce the issued quantity (=3) with the quantity (=1) used for first calculation above 3-1 -> issue remainder quantity 2 d. Continue the calculation using the issue remainder quantity 2 and the cost from the next record (no 6) 2 x 131.58 = 263.16
The value of the issued quantity: 133.52 + 263.16 = 396.68

Example 2

This second example is the same as the first example with the difference that the issued quantity is 9. Notice that the backward processing is exactly the same to find the oldest record, while the forward processing to calculate the value of the issued quantity makes use of more records than in example 1.

Example 2
Quantity in stock in actual warehouse = 12 Issued quantity = 9
1. Backward process by which to find the oldest active record	a. Start with the newest active record (no 7) and subtract the transaction quantity 6 from Quantity in stock 12 -> Remainder = 6. b. As the remainder is a positive value then continue backwards with the next active record (no 6) and subtract the transaction quantity 5 from Quantity in stock remainder 6 -> Remainder 1. c. As the remainder still is a positive value then continue backwards with the next active record (no 5) and subtract the transaction quantity 4 from Quantity in stock remainder 1 -> remainder -3. d. A negative or zero remainder value indicates that this is the oldest active record.
2. Forward process to calculate the value of the issued quantity	a. The remaining quantity in the oldest “active” FIFO records is the remainder quantity 1. b. Calculate the first portion of the value of the issued quantity starting with the remainder quantity (=1) using the cost from the oldest “active” record (no 5) 1 x 133.52 = 133.52 c. Reduce the issued quantity (=9) with the quantity (=1) used for first calculation above 9-1 -> issue remainder quantity 8 d. Continue the calculation using the issue remainder quantity 8 and the cost from the next record (no 6). The quantity (=5) in the next record (no 6) does not fully cover the remainder quantity (=8), therefore the full transaction quantity is used. e. Calculate the next portion of the value of the issued quantity using the full transaction quantity (=5) in record no 6 5 x 131.58 = 657.90 f. Reduce the remainder of the issued quantity (=8) with the quantity (=5) used for the second calculation above 8-5 -> issue remainder quantity 3. g. Continue the calculation using the issue remainder quantity 3 and the cost from the next record (no 7). The quantity (=6) in the next record (no 7) covers the remainder quantity (=3), therefore the last remainder of the issued quantity is used. h. Calculate the next portion of the value of the issued quantity using the last remainder quantity (=3) in record no 7 3 x 132.37 = 397.11
The value of the issued quantity: 133.52 + 263.16 + 397.11 = 793.79

The process above is described with the assumption that the product is not under batch control. The cost recording and retrieval processes for batch controlled item are described in the Batches section.

Serial number costs

Fields to hold the cost and transit cost are provided in the Serial number tracking file of each serial number. To use these costs the Cost type field at item level on the Item/Inventory panel should be set to “4” (Serial number costing).

The cost of each serial number is calculated during the cost calculation and booking process at

goods reception
invoicing (i.e. printing of credit note) of returned goods
reporting of manufactured goods into stock

The cost may as well be maintained for each individual serial number

from the Item inventory information panel
in Work with non-conformity certificate costs when the serial number has been classified and recorded as non-conformity stock

If the serial number is manually added to stock then the cost is entered during this process, e.g. in Inventory transaction.

Note: No costs from service orders in DC1 are added to the serial number cost when pre-delivery service is undertaken.

Costing levels

Item and Item/Warehouse

Fields to store the average, standard and last purchase costs are held at two levels within DC1 Distribution, namely:

Item level
Item/Warehouse level

It is therefore possible to hold different costs for the same item warehouse-by-warehouse, essential in situations where the total cost of an item varies due to the location of the warehouse or variation of supplier.

The decision of whether cost-per-warehouse or cost-per-item is used is defined in the DIS control file by a Cost per warehouse field and is effective for all items.

The Cost per warehouse field also controls from where the values are retrieved that are transferred to the General Ledger (G/L).

Note: By definition, the FIFO costing method is always cost/warehouse as a FIFO cost is recorded for every reception at each warehouse. These are then used in calculating the cost of each subsequent stock movement.

BtB Transit and BtB Direct

“Back-to-Back” (BtB) purchase orders can have two different types of delivery; transit delivery or direct delivery. Transit delivery means that the goods are delivered from the supplier’s premises to the transit stock in the warehouse and then on to the customer. Direct delivery means that the goods are delivered directly from the supplier to the customer.

BtB transit

It is optional to hold separate costs for the same item depending upon whether they are in normal sales stock or transit stock. This is defined in the DIS control file by the use of a Separate cost handling field and is effective for all items. Fields to store the Average transit cost and Last transit purchase cost are held at item and item/warehouse level.

Note: Separate cost handling is only applicable for Average transit cost and Last transit purchase cost NOT for Standard cost as this is always the same for both normal and transit stock.

BtB direct

The cost for direct delivery is always discrete, meaning that the cost from the purchase order line for the goods delivered directly to the customer is used as the cost (Cost of Goods Sold) for the corresponding sales order line when the sales order is invoiced.

Activation of Cost per warehouse

The function is activated by setting the Cost per warehouse field in the DIS control file to YES. The values from the following fields in the Item file are copied to each respective Item/Warehouse record:

Last purchase cost
Last transit purchase cost
Average cost
Average transit cost
Standard net purchase price
Standard cost
Calculated standard cost
Calculated standard cost effective date

Note: There are no bookkeeping transactions created during this routine.

Inactivation of Cost per warehouse

The function is inactivated by setting the Cost per warehouse field in the DIS control file to NO.

When it is inactivated an inactivation process will recalculate the average cost on item level to match the bookkeeping value of the stock. For each warehouse, the Quantity in stock is multiplied with the average cost to arrive at a stock value for that warehouse. The stock values for all warehouses are then accumulated and divided by the accumulated total Quantity in stock for all warehouses to arrive at an item average cost. The calculated cost is then rounded to the number of decimal places for the cost price specified in the currency table for the system currency.

Bookkeeping transactions for type 901 (Stock value) and 915 (Average cost change) are created for any differences between the rounded price multiplied by the total stock on hand in all warehouses and the total stock value previously calculated, i.e. any changes of the total stock value caused by the inactivation.

Stock valuation

There are two types of stock valuation reports in DC1. Current valuation reports that value the stock at the time the report is created and periodical reports that value the stock related to an historical period.

Current stock valuation

The stock valuation reports that value the stock and provide an on-the-spot account can be produced for any of the cost methods irrespective of the setting of the Cost type field in the DIS control file or at item level. The cost method for the printed report is selected when the report is printed and is used for all items in the report. The report can also be printed using an option where the report values the items according the cost methods defined for the item and which also is used in the bookkeeping transactions to G/L. However, the stock value is still a snapshot when the report is printed and cannot be reconciled with the G/L.

Periodical stock valuation

Stock valuation reports that value the stock for a user defined historical period considers the setting of the Cost type field in the DIS control file or at item level. This type of report reconciles the transactions and balances in the G/L.

Internal Replenishment Orders (IRO)

Dispatch reporting

The cost value of dispatch reported goods on an IR order is booked into G/L as Goods in transfer/stock supply (Transaction type 907). The cost is retrieved according to the costing methods defined for the item. The goods are considered as dispatching warehouse property until the goods have been received in the receiving warehouse. Any changes to the cost of the item will cause an adjustment of the value of the stock being in transfer between warehouses, i.e. the quantity in the On IR order field in the item/warehouse for the dispatching warehouse.

Reception and QC reporting

There is a difference at goods reception and quality control (QC) for an IRO compared to a normal purchase order (see the Costing methods section for information about reception and QC of normal purchase orders). The purchase price on the received IR purchase order line which is used for the value of “Reception from Supplier”, “Goods in QC” and “Awaiting cost check” bookkeeping transactions is overridden in various ways depending on the costing method for the item. This is described in the sub-sections below for the different costing methods.

Any landed costs are added to the IR purchase price at booking to arrive at the total cost. This total cost is used in the stock value bookkeeping transaction and the calculation of the new average cost at both item and warehouse level. This is valid for all costing methods including Serial number costing.

Note: A consequence is that the movement between warehouses may cause an increased cost of an item because of additional landed costs related to the transfer of the goods.

Average and Standard cost

For Average and Standard costing, the actual cost value of the item in the “from” warehouse at the time of reception of the goods into the “to” warehouse is used as the purchase price on the IR purchase order; either from the Item file or the Item/Warehouse file depending on the Cost per warehouse setting in the DIS control file.

FIFO cost

For FIFO costing, the cost from the linked sales order is used as the purchase price on the purchase order. The FIFO cost records are retrieved at the time of dispatch from the sending warehouse and are stored/linked to the sales order line to be used in the IR reception process.

Serial number cost

For serial number costing, the cost for each individual item is used as the purchase price on the purchase order line. The cost is retrieved at the time of dispatch from the sending warehouse and is stored on the sales order line to be used in the IR reception process.

The unique cost for each individual item is stored on the sales order line as one sales order line can only carry one individual item.

Cost affecting events

The following events cause changes to the cost of an item:

Purchase order goods reception
Internal replenishment order goods reception
Stock movement (non-conforming stock to sales stock)
Stock movement (transit stock to sales stock)
Refresh of landed costs
Manual average cost change
Manual standard cost change
Manual serial no cost change
Manual non-conformity certificate cost change

For details of the bookkeeping transactions and calculations involved during these events, see the relevant links to the Overview documents in Routines in which accounting transactions are created from which you can drill down to view that information.

Cost retrieval events

The following events retrieve the cost of an item:

Module	Event	More information
Sales	Invoicing of external sales order and Cash sales order	Goods dispatched from DC1E are considered a property of the selling company until the invoice has been created/printed. Therefore, the COGS and stock value transaction are performed during the invoicing process. The quantity of the dispatched goods is recorded in a separate Disp not inv field in the item/warehouse record. If there is a cost change (e.g., average cost) for the item between dispatch and invoicing the goods in Disp not inv will be included in the cost revaluation.
Sales	Return of goods from customer	Goods returned from a customer into DC1 are, inversely to sales above, considered a property of the customer until the credit note has been created/printed. The cost is also retrieved here during the invoicing process with one exception due to technical reasons. When FIFO is the costing method for the item the cost for the returned goods has to be defined already when the credit order line is entered into DC1. This cost is then kept on the credit order line and will be used in the cost bookings during invoicing.
Sales	Internal replenishment order dispatch	Goods dispatched on an IR sales order are considered being a property of the dispatching/sending warehouse until the goods have been received in the receiving warehouse. The quantity of the dispatched goods is recorded in a separate On IR order field in the item/warehouse record. If there is a cost change (e.g. average cost) for the item between dispatch and reception the goods in “On IR order” will be included in the cost revaluation.
Purchase	Return to supplier
Inventory	Stock adjustment Stock movement Stock take	For details regarding the bookkeeping transactions and calculations and involved during these events, see the relevant links to the Overview documents in Routines in which accounting transactions are created from which you can drill down to view that information.

Batches

The cost for batch handled items is identical to the cost handling for non-batch handled items for Average and Standard costing. For FIFO and batched handled items the cost handling is very similar to the handling for a non-batch handled item with the difference that the FIFO recording and retrieval is performed on item/warehouse/batch level.

Non-conforming stock

The non-conforming goods will, when rejected during the quality control process, be allotted the same cost as the approved goods. The goods can thereafter be further examined and valued and the cost can then manually be changed for each non-conformity certificate (NCC). If the goods on an NCC are moved into normal sales stock, the cost of the NCC goods will impact the cost of the item in the normal stock for all costing methods except for Serial number costing.

For Serial number costing on NCC the cost of the individual goods can be manually changed on the NCC. If the individual item on an NCC is moved into normal sales stock, the cost of the individual item is kept also in the sales stock.

DC1 Supplier Marketing Support

The DC1 Supplier Marketing Support (SMS) functionality impacts the Cost of Goods Sold (COGS) when the sales order line is invoiced where COGS is reduced relative to the SMS agreement condition. An additional affect could arise if the supplier for some reason refuses to pay the full claim amount. This will then increase the COGS correspondingly when the claim is adjusted in the system.

DC1 Customer/Supplier Rebates

The Rebates functionality handling customer and supplier has no impact on the cost in DC1 Distribution. Any paid or received rebate claims are simply booked into A/R, A/P and G/L.

Changing of costing method in a running company

Average or FIFO -> Standard

This section can serve as guide for a possible stepwise approach when changing costing method in a running DC1 company and a fool-proof function in DC1 standard. The description below assumes that one common costing method has been defined in the DIS control file with no exceptions on item level.

The timing of the change is suggested at the start of the accounting period before any other transactions are created for that period in a routine similar to the following that should maintain control of the total stock values.

Step	To do
1.	Try to leave as few in-progress orders as possible in all areas, i.e. sales, service and purchase in order to reduce the amount of stock that is: Dispatched not invoiced, On IR order and WIP in service. The system should take care of any standard cost changes in these areas, but it is better to have things tidy if possible.
2.	(Optional) Perform a stock take.
3.	Print a stock valuation report according to Average or FIFO depending on the “from” costing method. Make sure that all stock is included, i.e. On hand, Dispatched not invoiced, On IR order and WIP service quantities are included. Compare with the stock values in FIN. The non-conforming stock is not affected by the change of costing method and need not to be considered.
4.	Update the Standard cost field (STCO) Changing from average to standard: Develop and run a program which updates the Standard cost field (STCO) with the average cost (APCO), either in the Item file SROPRG or the Item/Warehouse file SROSRO depending upon the Cost per warehouse setting in the DIS control file. If the Separate cost handling field is set to YES in the DIS control file and there is stock on hand of items both in transit and normal stock and the costs vary the value in STCO may have to be calculated manually. When the new standard cost is multiplied by the total of normal and transit on-hand quantities the value should be equal to the “old” total average cost value. This step may even be necessary to do manually to arrive at the correct new standard cost. Changing from FIFO to standard: Develop and run a program which updates the Standard cost field (STCO) with the actual cost per item/warehouse average cost (APCO), either in the Item file SROPRG or the Item/Warehouse file SROSRO depending upon the Cost per warehouse setting in the DIS Control. Calculate the new standard cost as an average cost for all “active” FIFO records per item/warehouse. See how FIFO works in the FIFO section above. This calculation may cause rounding differences which need to be detected and probably manually booked in the G/L in order to get the stock valuation report to reconcile with the stock values in FIN.
5.	Print a stock valuation report according to Average or FIFO depending on the “from” costing method. Make sure that all stock is included, i.e. On hand, Dispatched not invoiced, On IR order and WIP service quantities are included. Compare with the stock valuation report printed under step 3 above. The non-conforming stock is not affected by the change of costing method and need not be considered.
6.	Ensure that all standard cost transaction types are correctly defined 793 – Standard cost diff project 796 – Stand cost diff /Non-conf, project 909 – Standard cost change 914 – Standard cost diff./Stored 934 – Purch. Price Variance/Stored 935 – Purch. Price Variance/Non-conf 937 – Standard cost diff/Inv mvmt 946 – Standard cost diff./Non conf. 964 – Landed cost variance 965 – Non-conf. Landed cost variance
7.	Back up
End of accounting period – the following steps are in the new period
8.	Change the flag in the DIS control file to Standard cost.
9.	Check and update Standard purchase price in field STPU The purchase price should be updated either in the Item file (SROPRG) or in the Item/Warehouse file (SROSRO) depending upon the cost per warehouse setting. This could be where the majority of the work lies in the changeover depending upon whether or not landed costs are used and how the standard purchase price is to be determined/calculated.
10.	Check and update any landed costs
11.	Refresh landed costs. This may cause the standard cost to be re-calculated depending upon the value of the standard landed costs that were calculated when the system cost type was Average or FIFO and a new standard purchase price in step 9 above.
12.	Print a new stock valuation report according to Standard costing. Compare with the stock values in FIN.

Update of cost prices

In DC1 core there is a function for margin calculation to display the gross margin percentage in the sales order entry program and to save the cost price and value used for the margin calculation on the sales order line. This calculation is based on a margin cost basis calculation method parameter, stored in the Item file or in the DIS control file (if not set in the Item file) indicating which of the following the calculation should be based on:

Average purchase cost
Standard cost
Last purchase cost
Purchase price 1
Standard cost sales

In DC1 the cost price and value for margin calculation are saved when a sales order line is added or if the cost price on the order line is changed or if there are changes in SMS rebates. This is also done for serial number costing items when the serial number is added, changed or deleted or when the cost price of the serial number is changed. The cost price and value fields for the margin calculation are updated to DC1 Business Intelligence. They are also stored in the invoice statistics and DC1 Business Information Warehouse.

When the sales order line is invoiced the “real” cost of goods (COGS) is calculated using the cost type from the Item file or from the DIS control file if no cost type exist in the item file. The cost price is updated to the cost price field on the sales order line file (except when the field is already filled in) and to the invoice statistics file. This cost price is updated to the general ledger if DC1 Financials is activated. It is also updated to DC1 Business Intelligence and Business Information Warehouse.

Cost calculation can be based on:

Average purchase cost
Standard cost
FIFO (First In First Out)
Serial number costing (can only be defined on the item level)

For automatic update of standard cost sales for items, (not item classification items), the SCS calculation fields on Item/Inventory information level (i.e. SCS calc basis, SCS calculation type and SCS calc value) will be used to update the Standard cost sales field which resides both on Item/Inventory information level as well as Item/Warehouse level. The latter will only be updated if the Cost per warehouse functionality is activated in the DIS control file.

If the CLA-COPR (Classification costing/pricing) function is activated together with the CLA-ITEM (Item classification) function in the Function control file, it is possible to define purchase and sales prices on the item classification definition (higher level) and download these prices to the item level. During the Standard net purchase price (SPP) download routine, Standard cost (SC) and Standard cost sales (SCS) of the item are calculated based on the purchase price for todays period and saved on the item level or item/warehouse level. The first supplier from the item/supplier ranking list (main supplier) is used when cost prices are calculated if Cost per warehouse is not used. If costs are defined to be stored on the warehouse level, cost prices for the active warehouses are calculated and updated. In this case the supplier defined for the warehouse is used. This calculation is done via the Update costs from purchase price black box program.

The download of the costing can be trigged from the item level or from the higher level of the item classification when changes regarding supplier or purchase price information are done. The cost update can also be done through a mass update to be started either manually or via daily batch run routines.

During the download/cost update, landed costs for the item are calculated. In this calculation the Main cost warehouse of the item is used to retrieve landed cost value if Cost per warehouse is set to NO. If no Main cost warehouse is defined for the item, the Main warehouse from the DIS control file is used.

The latest cost prices can be updated during the daily batch run. This is because cost prices are not updated per period as purchase prices are and the costs must be based on todays SPP. For example:

Purchase prices on the item level:			Costs on the item level:
From date	To date	Price	Standard cost	Standard cost sales
01/10/12	31/10/12	80	88	92
01/11/12	30/11/12	90	–	–
01/12/12	–	100	–	–

When a date is 1/11/12 purchase price 90 is active but costs used are based on the purchase price from the previous period. When costs are updated on a daily basis the user can be sure that costs are based on the active purchase price.