ITrack/Enterprise/Costing
What is Costing?
Costing is kept track of for accounting purposes; some companies get charged tax based upon how much all of their inventory is worth. This is determined by how much it cost the company to buy all their stuff, so the value of the inventory at their yard is call their Inventory Cost.
Overview of how costing works in Enterprise
What happens is that Inventory Cost is listed as an asset for the company in their accounting. When a part is sold it is no longer an asset, it needs to be recorded as an expense - more specifically COGS (Cost of Goods Sold) because that is what it cost the company to buy the part, and it was an item that was sold.
For most parts, cost is introduced into the system when a vehicle is put into a Purchase Order. The price of what they bought the vehicle for on the Purchase Order is now its Vehicle Cost Pool. The point of a Vehicle Cost Pool is to spread out the cost associated with the vehicle, because you're not selling all of its parts all at once. When a part is sold, cost is consumed from the vehicle and associated with the part as COGS, as described above. Once all of the cost is consumed from the Vehicle Cost Pool, any other part from that vehicle you sell is considered pure profit.
The Vehicle Cost Pool can be calculated by using values found on the Vehicles Screen on the Costs tab.
Vehicle Cost Pool = Total Cost - Allocated Cost
Costing
Consuming cost in ITrack Enterprise is done in five different ways:
- Complete Vehicles: the costs used to purchase the vehicle, as well as any work done on it.
- Standard Parts: when they are sold take a percentage of their price as cost based on an internal default setting.
- Miscellaneous Parts: parts that don't belong to a vehicle and are entered manually. The cost of this part will be equal to its Average Cost.
- Replenishable Parts: they have their cost assigned at the time they are purchased, and each subsequent purchase updates their cost, because of how average cost works.
- Cores: when a vendor charges a core charge to the company.
Complete Vehicles
- When the unit is sold, the entire cost of the vehicle is attributed to the part.
If a vehicle displays a cost of $1,000 in the Cost tab of the Vehicles Screen, when the Complete Vehicle (part type 9000) is sold, $1,000 (100% of the vehicle cost pool) gets allocated toward consuming the cost of the vehicle, thus changing it from an asset to an expense on the accountant's balance sheet.
Standard Parts
There are two ways a standard part can consume cost from the Vehicle Cost Pool.
1. Percent of Price Costing: At the time of sale, a percentage of the selling price of the part gets allocated toward consuming a portion of the vehicle cost pool. How much of a percentage gets converted? That is based on what GL Category the part has assigned to it (Parts Screen >> Advanced tab) as well as what percentage that GL Category is set up to have (Accounting Screen >> Categories tab >> Edit button).
Let's say that we sell a standard part at a price of $1,000 and that our Percent of Price Costing for the GL Category is 50% (the default for Percent of Price Costing). The part will consume half of the price, so $500 will be removed from the Vehicle Cost Pool. If the Vehicle Cost Pool started with $2,500 then we will now only have $2,000 left in our Vehicle Cost Pool that needs to be consumed. Remember, any parts sold after the Vehicle Cost Pool is gone will be pure profit, and that this is all done for accounting purposes.
2. Overriding Cost: The Cost field on the Part Information tab of the Parts Screen does not display how much you bought the part for, it is a 'Cost Override' field that determines how much cost that part will remove from the Vehicle Cost Pool when it is sold. Overriding a cost on a part causes Percent of Price Costing not to be used on that part.
Let's say that we sell a standard part with a cost override of $1,150. This amount will be removed from the Vehicle Cost Pool. If the Vehicle Cost Pool was $2,500 then it will now only have #1,350 that still needs to be consumed.
Miscellaneous Parts
Because miscellaneous parts are not associated with a vehicle there is no Vehicle Cost Pool to consider. The Average Cost of a miscellaneous part is introduced into the system at the time it entered on a Purchase Order, and the Average Cost of the miscellaneous part is consumed when it is sold on a Sales Order (or put on a Work Order). This activity causes the accountant's balance sheet to match up.
Replenishable Parts
Like the miscellaneous parts, replenishable parts have no Vehicle Cost Pool to worry about. The cost comes in as the Average Cost on a Purchase Order and is consumed when the item is put on a Sales Order or Work Order.
Cores
Core costing will really only happen on Replenishable parts, when a vendor charges a core charge on a part. Let's say that the company buys a new transmission from a vendor; vendors can give a core charge to companies just like the company can for their customers, so the vendor charges the company a price of $10,000 and a core charge of $2,000 for the transmission.
On the Purchase Order where the transmission was received, the transmission had a core price of $2,000 - so that becomes the core's cost in inventory. If you were to check on the transmission in the database you would find that it has inventory.averageCOREcost = 2,000.
The transmission was replenishable, so it had an Average Cost of $10,000 (based on the price that the vendor charged the company) that got consumed. Because there was a core charge from the vendor the transmission also had an Average Core Cost of $2,000 (based on the price that the vendor charged the company for the core).
Finalizing Prices on Purchase Orders
One quick note that will clear up possible confusion in the future. On the Purchase Orders Screen, if you create an adjustment to a line item - the adjustment will not show up until you finalize the pricing (and save). Thus, the costing for that item will not change until the adjustment takes place (which happens when the price of the items in the PO are finalized).
For example, if you have 2 engine assemblies (each costing $200) in a Purchase Order, and shipping those items costs $100 total (which you enter as a line item adjustment):
- Before finalizing prices: Cost for each item = $200
- After finalizing prices: Cost for each item = $250 ($200 + $100/2; cost of the item + shipping/quantity)
Costing vs the Cost of a Part
This is the main confusion surrounding costing. When someone asks how much a part costs, are they asking about the price they bought a part for or how much of a Vehicle Cost Pool is going to be reduced?
- The process of Costing: For accounting purposes; this spreads the cost of a vehicle over the parts that are torn off of it. Although this is not perfectly true, you can think of it as the process of reducing the Vehicle Cost Pool down to zero.
- How much you bought a part for: The Average Cost of a part. To find a part's Average Cost, open the part in the Parts Screen then go to the Part Transactions tab. The Average Cost field will be displayed at the bottom left.
| Tip |
| Something called Average Cost is used to track how much you paid for a part. The Cost field on the Part Information tab of the Parts Screen is not this value, that is a 'Cost Override' field that determines how much cost that part will remove from the Vehicle Cost Pool. To find a part's Average Cost, open the part in the Parts Screen then go to the Part Transactions tab. The Average Cost field will be displayed at the bottom left. |
Additional Questions
The fine details on Average Cost can be found by looking at the f_calculate_average_cost function in the database.
If you have any additional questions, please contact Justin or Dillon, or search the Enterprise Wiki for costing. We'll be glad to help!
