The Stream V Product Management and Accounting systems use the average weighted cost method for maintaining inventory costs in the inventory sub ledger. As transactions that affect item costs are processed on the system, the application automatically re-averages the cost of the item. The new calculated cost is then loaded into and used for the item in all warehouse locations in the current division. The calculation method used is as follows.
1. Calculate the extended cost (quantity times average cost) of the item in all locations which are in the current accounting division.
2. Add the extended cost of the item that is being added to the inventory locations in the current division (the total quantity received or built, and the total cost of these items)
3. Divide the new extended cost by the new total quantity to get the new per unit cost of the item
4. Load the new unit cost into each Inventory Master record in the current division and record the cost change for each item and location by creating an Inventory Activity record.
Note: Each inventory location is assigned to a specific dept which is assigned to a specific division. The system normally synchronizes the costs for an item in all locations in the current division. The logic is that each division is a separate company and the inventory asset belongs to this company. By averaging the costs in all locations in the division, the system can prevent problems due to stale costs in seldom used locations such as those used for processing returns.
The average cost of an item can be updated by the following processes.
Shop Order Completion
Average Cost Adjustment The system allows the average cost of an item to be adjusted
The cost of each inventory item is maintained separately in each inventory sub-ledger. Various transactions result in the transfer of inventory from one sub ledger to another using several different Transfers of items between the sub ledgers are handled by either results in Costs are either averaged as movement between the sub ledger occurs or a gain or loss is recognized
Avg Costing across all locations within a division
There are four methods that may be used to update costs within the software. These update methods are described below.
1.) By Location. The cost for an inventory item can be maintained within a single inventory location. When this method is used, the system updates the cost for the item in only the location in which the transaction is taking place.
2.) By Division. Average within a single division. Costs are updated in all logical warehouses which belong to same division in which the transaction is taking place. This method must be used when multiple divisions are in use and when the divisions represent separate legal entities. This method provides the benefit of average costing across locations while ensuring the integrity of the costing data within each division or company.
3.) System Wide - Costs are re-averaged using quantities and costs for item in all warehouse locations in which item is maintained regardless of division (company) each location is assigned to.
4.) Normalize - Normalizing is the process of copying the information about a particular inventory item in one location and using this information to update the item in all other locations in which it exists.
Costs Maintained in the Inventory Master File (INVENTRY)
Stream II allows you to maintain multiple costs for each inventory item in the system. Some inventory costs are automatically updated by the system and others must be manually maintained. The different costs supported by the system are listed below.
Average Cost - The average weighted cost of the inventory item (also known as unit cost and named as such in the Inventory Master file). The average cost of each inventory item is maintained by the system. The average cost of each inventory item is the cost used by the system for financial reporting, for posting sales, and for auditing system integrity. The average cost of each item is recalculated each time the item is received or produced by the manufacturing systems. The average cost of an item can also be affected by other transactions including price protection. The average cost of each item can be adjusted when required using the Average Cost Adjustment option available in the Inventory Master program.
The calculation method used when recalculating average cost is as follows.
Determine the total quantity and total extended cost for the item in all warehouse locations within the division
Determine the quantity and cost of the item being received.
Add the extended cost of item being received to the current extended cost of items on hand. Take the new extended cost and divide by the new quantity.
The calculated new average cost is then loaded into the item in all warehouse locations in which it exists (within the current accounting division).
Standard Cost - The Standard Cost field is a user definable field that can be used for various purposes. The standard cost field can be used to track a loaded cost (a cost that includes a markup for freight, and adjustments for rebates due on the item, co-op advertising, etc.). The field may also be used for estimating production costs in a standard cost environment. The Standard cost field is normally maintained manually by editing the field although custom routines may also be used to load the field based on other information stored in each inventory item.
Next Cost - The Next Cost field is typically used to store the current purchase price of the item (the cost to buy the item the next time it is purchased). The Purchasing department can manually maintain the Next Cost field or it can be automatically updated by the system based on vendor or manufacturer price information.
Commission Cost - In order to provide maximum flexibility in the commissioning of sales people a dedicated "Commission Cost" field is provided in the inventory master and carried through the sales order and invoicing processes to allow for the easy production of commission reports.
As a sales order or invoice line item is created the system defaults a cost into the commission cost in the line item. The commission cost for each sales order line is determined as follows.
1.) If the system generated a target price based on a "special" or "contract" price and a commission cost has been specified in the special pricing record, the system will use this cost as the commission cost. The commission cost in the special pricing record is stored in the same currency that the special pricing record is entered in
2.) If a special price was not used for the sales order line being entered, the system checks if there is a non-zero value in the COMMISSION COST field in the inventory master. If the field in the inventory master is loaded, the system moves that value (adjusted for the currency being used on the sales order) into the sales order line. If the commission cost in the inventory record is not loaded, the system checks the F248 parameter SOCOMCST. This parameter determines which cost should be used as the commission cost if no commission cost is specified for the item. Valid options for the parameter include S" (Standard cost), "L" (Last cost) is moved to the COMMISSION COST. .
The commission cost may be displayed in the order entry line item browse to allow the sales people to see the cost that they will be commissioned against. It may also be used to calculate the margins displayed by the order entry programs. The F248: SOEDCOM flag may be set to "N" to disable the editing of commission costs by sales people during order entry.
The logic behind allowing sales people to edit commission costs at all is to support situations where sales people research costs for special sales and need to calculate margins on an order based upon future purchases of the product. This is very common is situations where prices and cost change quickly and the company operates more as a broker than a distributor. An example of this is where a sales person has the possibility to get an order for a large quantity of an item, checks with the company's supplier to get a special price for the one time purchase and wants to enter the order with the price they expect to be commissioned on. Please see the application note on "Purchasing Alert Comments" as these would normally be used in a situation like the one described to alert the purchasing department that a special price has been negotiated.
If the sales people are allowed to change the commission costs the company should put the appropriate procedures in place to track the variance between commission cost and unit costs.
Using the "Limited Invoice Editor" it is possible to adjust the commission costs after invoices are created to properly prepare commission reports.
The Commission Cost field is used to store the cost to be used for commissions when the inventory item is sold. The Commission cost field is a manually maintained field in the Inventory Master file. The commission cost for a particular invoice or sales order line can be based on the commission cost for the inventory item in the Inventory Master file, or it can be based on other information such as special pricing records, purchase order prices, etc. The commission cost is carried by the system through the Sales Order and Invoice files. As sales orders and invoices are processed, the system stores the current commission cost for each item in the Sales Order and Invoice detail so that these costs are available for commissions reporting purposes.
Once commission cost is saved to Soline (during order entry), it is only updated when you are dealing with a special order or a vendor ship line in the Requisition program. The REQ program has a 248 switch (PREQSOUP) - which if set to Y causes the system to update the commission cost in the Soline with the price from the PO line that is cut for the so (i.e. it updates commission cost in linked solines when you place a requisition for the linked lines). Logic is to update soline comm cost with poline price - rebate in the soline.
Commission Cost - The commission cost is an optional field that may be used to store the cost to be used when calculating commissions for your sales representatives. The Commission Cost field can be manually loaded or it can be programmatically loaded using various custom programs. The commission cost field allows you the flexibility of setting the cost for the item for commission purposes regardless of the a
Last Cost - The Last Cost (or Last Price Paid) for the item based on inventory receiving history, including supplemental receiving costs. Supplemental receiving costs are non-inventory costs that are capitalized or added to the cost of the item during receiving. Examples of supplemental costs might include freight or duty paid on the incoming shipment. The Last Cost field is a system maintained field and it is updated whenever the inventory item is received using the PO/Inventory Receiving program.
Last P/O Cost - The LAST PO COST (or Last PO Price Paid) for the inventory item based on the last PO receipt for the item. The last PO price is based on the PO price for the item and it does not include any supplemental costs applied to the item during the PO/Receiving process. The Last PO Cost field is updated by the system whenever the inventory item is received into inventory using the PO/Inventory Receiving program.
Last Std. Cost - The LAST STANDARD COST for the item. This field is manually maintained.
Next Std Cost - The NEXT STANDARD COST for the item. This field is manually maintained.