On Costs contain descriptive details and default settings used for allocating any additional costs that you want included in the cost of inventory items received through the Purchasing system.
“On-costs” can be optionally applied to goods received on any Purchase Shipment. You can add multiple on-costs to a given shipment and allocate them to the line items on the shipment using allocation methods of either Quantity, Value, Volume, Weight, Fixed % or you can choose the manual method.
On-Costs are useful to allow goods received into stock to include more than just the Material price invoiced by the Supplier. There are costs such as freight, insurance, handling and duty which can be added on to the price of the goods as part of the Shipment Costing process. The use of on-costs allows you to arrive at the “fully costed” value of the goods received inventory.
These additional costs can be accumulated by On-cost code and allocated across the many items on a given shipment receipt rather than expensing these additional costs directly to GL accounts in the P&L. Having stock items “fully costed” into store then assists in capturing the real cost of a given item for inventory valuation purposes and helps to generate realistic Costs of Sales and Costs of Manufacturing. In short, it helps to better reflect the true “Margin/Markup” of a finished item before it is sold.
Example
You have receipted goods via a purchase shipment and have an additional invoice for freight charges relating to the delivery and you want to add the cost of that freight onto the items being received.
You receive a shipment from overseas. There are 20 items on the shipment and the total Invoice Value for the Material portion from the Supplier is $20,000. In addition to the supplier invoice, you receive an invoice for $2000 from your Agent for Freight, Duty and other charges. The total Shipment value is $22,000. Using on-costs you can receive this shipment into stock for the landed cost of $22,000. The additional costs can be allocated by the relevant method e.g. Quantity, Value etc. Each of those line items will then reflect the landed cost and that cost will be used for that line item for inventory valuation, selling price margins and contribution analysis etc.
Minimum Requirements
It is not necessary to set up on-costs to receive and cost shipments.
Changing Established Data
You can set up and adjust on-costs if needed at any time.
Panel Options
- Standard panel features
- Maintenance
- Views
- Audit – shows an audit trail of the data changes made over time to the on-cost code currently being viewed
- Where used – shows a list of shipments with the on cost currently being viewed added to the shipment cost.
- Reports
- List On Costs