Handling of Costs by AXIS Diplomat 2006 Stock Ledger

The Stock Ledger holds three cost fields, as follows:

• Standard Cost
• Current Cost
• Actual Cost

Typically, the Standard Cost is updated from time to time, manually or by importing from a supplier price list or spreadsheet. This is not normally updated on a day-to-day basis.

The Current Cost is typically updated following a purchase (typically at the stage that a Purchase Invoice is booked on) or by importing an updated supplier price list.

The Actual Cost is held against each Stock Receipt transaction and shows the actual cost of that particular purchase or receipt.

In situtations where current cost varies widely (for example, due to currency fluctuations), the Standard Cost is more commonly used for valuation purposes. In situations where costs tend to move in one direction (i.e. generally upwards or generally downwards), the Current Cost is used for valuations.

The AXIS Diplomat Stock Ledger functions on a FIFO (First In, First Out) basis* - in other words, it assumes that when you issue stock (e.g. for a sale), you are issueing the oldest stock first. By keeping track of the Actual Cost on each receipt, and by downdating the stock on hand for each transaction, the system is able to automatically calculate the Actual Value of your current Stock on Hand. This is also used to provide an Average Cost. This is all done automatically by the system.

Example

You purchase 10 Widgets at £10.00 each. You subsequently purchase a further 20 Widgets at £15.00. Your total stock valuation at Actual Cost is now

(10 x 10) + (20 x 15) = £400

The Average Cost is therefore

400 / 30 = £13.33

If you sell 8 Widgets these will be taken from the oldest receipt (i.e. those at £10 each). The Actual Cost of Sale on that transaction will then be

8 x 10 = £80

Your total stock valuation at Actual Cost is then

(2 x 10) + (20 x 15) = £320

The Average Cost is now

320 / 22 = £14.55

If you sell 5 more Widgets, 2 will be taken from the oldest receipt (at £10 each) and the balance will come from the next oldest receipt (i.e. those at £15 each). The Actual Cost of Sale on that transaction will then be

(2 x 10) + (3 x 15) = £65

The Average Cost is now £15 since all remaining stock is from the receipt at £15 each.

Cost Of Sales Analysis

A system parameter allows you to specify whether Standard, Current or Actual Costs are used on Cost of Sales Analysis within the Sales Ledger. This does not need to be the same cost method that is used for Stock Valuations.

* - the exception to the FIFO operation is on systems with the optional Stock Transaction Traceability module. When issueing stock, the operator is offered a list of the Batches or Serial Numbers in stock and the Actual Cost is picked up from the appropriate receipt and, in the case of a sales transaction, used for the Cost of Sale.