Inventory Costing Methods

When configuring SAP Business One, the system provides the following options for calculating the value of inventory. 

• Standard 
• Average 
• FIFO (First in First Out) 

Note:  FIFO is supported but not the preferred option.  

While Eralis Job supports each of these costing methods, the preferred costing methods are either standard or average costing. Several companies use FIFO costing to try and obtain the most accurate cost for an item that has been purchased on and used on a job to get the most accurate margins. Eralis Job introduces actual costing for purchased items which means that what the item is purchased for is the cost that will be tracked against the job all the way through to invoicing. This includes instances where the same item may be used multiple times on the same job with a different cost each time. The need for FIFO costing in greatly reduced with the introduction of actual costing in Eralis Job. Please note that if SAP Business One is configured to use FIFO costing, Eralis Job requires that a single General Ledger account is used for all the inventory control accounts and for the work-in-progress General Ledger account. 

Manage Item Cost Per Warehouse is a setting within SAP Business One that allows the system to calculate the cost of an item for each warehouse, or calculate the cost for the item overall. This setting cannot be changed after transactions have been processed. The Manage Item Cost Per Warehouse setting is found under the Administration – System Initialization menu, looking at the Basic Initialization tab on the Company Details screen. 

Within Eralis Job it is recommended that SAP Business One is set to manage cost by warehouse. If SAP Business One is not configured in this way, there are several important items to be aware of: 

1. You cannot have a separate work-in-progress General Ledger account. All inventory control accounts and the work-in-progress accounts must be set to use a single account in the balance sheet. 
2. Actual costing will be lost if the system is not set to manage cost by warehouse. Eralis Job will revert to using the costing method that is configured within SAP Business One. 

Actual costing is specifically related to items purchased for a job. The actual costing is tracked at an individual job line level, meaning that the same item code can be used on a job with different costs and the system will track those costs for the specific line until that line is completed. This can be beneficial in situations where you may have numerous one-off items required for a job. You can create a miscellaneous item code and then use that item multiple times on a job. It would be worthwhile to set it to a standard costed item with a zero cost. The item code could be purchased from different vendors, but each Accounts Payable (A/P) transaction would create a different line on the job with its own specific actual cost. This can be initiated from the quote stage. On the job quote you can have the same item multiple times on the job and change the description to reflect the actual product you want. The user can specify the cost price and the vendor on each line of the quote.  By using the stock check function, Eralis Job will automatically create the purchase order for you with the cost price specific to each line of the quote.  

It is also important to note that actual costing works for both inventory and non-inventory item codes.