Costing Setup

We strongly recommend you decide on a coherent, overall costing strategy for your company before implementing any of the costing functionality in the system.

Ensure you understand the implications of the cost type and cost method you have chosen before you implement the manufacturing functions. After your strategy is complete, you can set up the system to handle the associated calculations and controls and provide the appropriate cost reports. You implement your strategy by indicating your decisions on the fields in this table, which control the way costst are maintained, processed, and applied throughout the system:

Form Field
Inventory Parameters Cost Type
General Parameters Post to Journals
Purchasing Parameters Update Current Cost
Items Cost Type
Cost Method
  1. Open the Inventory Parameters form and select a cost type in the Cost Type field. The cost type you select at this level becomes the default value in the Cost Type field when you add new item records. On the Items form - General tab, you can overwrite the cost type on an item by item basis. Valid options are:
    • Standard Costing
      • All inventory reports use the standard cost of each item.
      • All transactions processed that affect inventory value are posted to the inventory distribution journal at standard cost (variances are also posted).
      • You can still use one of the four actual cost methods (average, LIFO, FIFO, or specific) for job costing, even though you are using standard costing for your journals/ledger.
    • Actual Costing
      • All inventory transactions are posted to the inventory distribution journal based on the cost method you enter for each item on the Items form.
      • The cost used for inventory reports, job costing, and posting to the inventory ledger distribution journal is determined by the costing method specified in the Items record for each item.
  2. Open the General Parameters form and select the Post to Journal check box if you want the system to post to the Ledger Distribution Journals transactions for all production and material transactions. Clear this check box if you do not want the system to perform the posting.
  3. Open the Purchasing Parameters form and select a value in the Update Current Cost field. This field tells the system how to use the Current Unit Cost field in Items for purchased items. Regardless of which costing method is in use, it is possible to use the Current Unit Cost field to maintain the current cost of purchased parts. The value of this field has no affect on the flow of costs through the system. It is accessed only by the purchase order receiving function in purchasing to determine whether it is possible to update the Current Unit Cost field in Items with the purchase price of the item. The valid values for this field are:
    • Average: The average purchase cost for purchased items is maintained in the Current Unit Cost field. When an item is received into stock by way of the purchase order receiving function, a new average cost is calculated for the item and posts the result back to the Current Unit Cost field.
    • Last: The system maintains the last price paid for purchased items in the Current Unit Cost field. When an item is received into stock through the Purchasing module, the purchase order unit cost is posted to the Current Unit Cost field.
    • None: prevents Purchasing from updating the Current Unit Cost field when items are received.
  4. Choose selections on the Items form-General tab.
    • Cost Type: Displays the cost type you entered as a default on the General Parameters form. If you want to overwrite the default for the current item only, select Actual costing or Standard costing. When you change the Cost Type, the internal information is converted to match the new type for the item. This may generate ledger transactions.
    • Cost Method: Maintains the cost flow method used for tracking and posting Cost Ledger transactions for the item. When you change the cost method, the internal information is converted to match the new method for the item. This may generate ledger transactions.
    Note: When determining the values it should use for posting to the journals/ledger, the cost type on the Items form is used first. If the cost type is Standard, the standard unit costs are posted for all items to the journals/ledger. But if the cost type is Actual, the cost method is used to determine the values it should post to the journals/ledger.

    The cost flow methods available for valuing inventory if your cost type is set to Actual are:

    Cost Type Cost Method
    Actual Average
    Actual LIFO
    Actual FIFO
    Actual Specific

    The cost flow methods available for valuing inventory if your cost type is set to Standard are:

    Cost Type Cost Method
    Standard Average
    Standard LIFO
    Standard FIFO
    Standard Specific
    Standard Standard
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