DYNAMIC 3i COSTING METHODOLOGIES

During initial DYNAMIC 3i software set-up a costing method must be chosen. Below are explanations for the three methodologies that Dyanmic3i has to offer based upon the setting of the costing flag. The costing flag is defined in the system flags maintenance – gb2800.

Note: once you have chosen a costing method you cannot switch/change once transactions occur within DYNAMIC 3i using the chosen method.

The manufacturing components of DYNAMIC 3i do not support “Average Costing”. If manufacturing is to be utilized then the average costing methodology CANNOT be used. Also, the costing method defined is ‘system wide’, so you cannot mix or have certain branches/warehouses operate under different costing methodologies.

Standard Cost

If you set the system to operate under the standard costing methodology then costing is based upon the use of variances and General Ledger postings according to a set standard cost for an item. Standard costing requires cost profiles be established for products. The cost profiles for purchased or raw materials are established within the Inventory control module, Standard Cost Entry (IN1110). In the case of any manufactured items the cost profiles for the components must first be established and then production cost calculation run (cc0300 or cc0400) to create the profile into the standard cost entry. When these profiles are updated within the inventories the current standard cost of the product is set. Purchase Price Variance (PPV) is utilized in conjunction with standard costing and all variances recorded within the A/P Invoice Entry matching screen (AP1100) are captured within favorable / unfavorable variance accounts established in the reason code table (GB4300). Note. The average cost of an item is always calculated and can be seen for information purposes even when the standard costing method is chosen

Average Cost

Setting the system to operate under average costing will cause the system to calculate and utilize the average cost of the product for all cost transactions within the system. Average cost is a calculation on all in-bound goods. The cost of in-bound goods is calculated into the average by utilizing the current value of goods onhand (quantity onhand multiplied by average cost) plus value of in-bound goods and this total is divided by the total units to establish the new average cost.

Actual Cost (FIFO / LIFO)

Choosing actual cost will set the system to use actual costing. Utilizing this methodology optionally allows for the setup of cost profiles if the manufacturing modules are to be used, either by standard cost entry or cost rollups in the case of fabricated or finished good items. This would be done to establish a reference point to compare associated costs against if desired. Under an Actual Costing environment each item or job would get its cost based upon the actual cost of the item or combined cost in the case of manufactured or fabricated goods.

The costing is tracked by the actual receipted cost of the items. In the case of the manufacturing modules the actual costs are transferred to the job and the cost of the job is now dependent upon the actual cost of the items as the job progresses. Jobs can still be compared to the standard cost profile. The job can be reported as costing ‘X’ amount based upon fluctuating receipted costs of the components actual costs being used on the job.

Based upon FIFO (First in First Out) or LIFO (Last in Last Out) principles as materials are received into inventories at varying costs the quantities used and depleted against a job will have their respective associated cost transferred to the job.

The last cost element of an item will be updated to the last receipted cost of the item in the case of a raw material or purchased items. In the case of a finished or fabricated item an automatic rollup of the actual costs of the components will be updated to the last cost as the finished or fabricated item is received into inventories.

As with all costing methods the average cost is always calculated for information purposes.