Navision Costing Methods

Fisherman · 2006-09-26

Could someone go into a little detail/give me a link with info about the Specific costing method in Navision? I've got a whitepaper on costing methods (Costing for Microsoft Business Solutions-Navision), but it's a little lean on details (only a one-paragraph blurb).

We've been told that the specific costing only works if you have Serial tracking turned on, and I would just like to verify/understand why.

themave · 2006-09-26

Specific costing needs serial tracking on, because it specifically identifies each purchase with a serial number and carries that cost with that specific item through out Navision.

So, if you buy item X for $800, you will assign a serial number to that item when you receive it.

If you then buy another item x, but pay $850 for it, you will assign a serial number to the item also.

Now you will have a qty of 2 for item x in your inventory. One for $800 and the other with a cost of $850. If you were average costing, you would have two at an average of $825.

If you go to sell one of them, you then need to pick the item with the serial number that you are selling at that specific cost will go to that sale.

when selling you can pick either item.

So it is not a first in first out, or last in last out or average cost, it is specific to the item.

Fisherman · 2006-09-26

OK -

It just seems to me that the system would be able to use Lot Nos. to track the specific cost against the lot, rather than against the item itself.

To give you an example -

We receive 100 of Item X in Lot 000001 at $8/ea. Tomorrow, we receive 200 of Item X in Lot 000002 at $7 /ea because of a price break for orders of 150 or more.

It seems logical that the specific costing (or some costing method in Navision) would know to associate the cost with the lot. The reason I say that is this - what happens if my vendor calls and says that there was a problem with Lot 000001, so I hold it, and sell from Lot 000002. I would think that you would like for that transactions profit to be based on the cost that was associated with that lot.

Fisherman · 2006-09-27

Sorry - let me pose that in the form of a question

Does Navision allow for any sort of Lot-specific costing, as opposed to specific tracking tied to each serialized item?

ssingla · 2006-09-27

Dear Fisherman,

Yes, Navision do provide specific costing with Lot Tracking.

Kowa · 2006-09-27

Fisherman wrote:

Does Navision allow for any sort of Lot-specific costing, as opposed to specific tracking tied to each serialized item?

In this case, you have to select the item ledger entry with the correct Lot No. in the field "Appl.-to Item Entry" before posting the shipment.

If you want to send the faulty lot back to the vendor, it is essential that "Appl.-to Item Entry" is filled out in the purchase return order or credit memo too.

Fisherman · 2006-09-27

ssingla wrote:

Dear Fisherman,

Yes, Navision do provide specific costing with Lot Tracking.

Can you provide any more information than this? How does it work? What do you have to enable in order to take advantage of it? Do you have any links or documentation that would better explain this?

kowa wrote:

In this case, you have to select the item ledger entry with the correct Lot No. in the field "Appl.-to Item Entry" before posting the shipment.

If you want to send the faulty lot back to the vendor, it is essential that "Appl.-to Item Entry" is filled out in the purchase return order or credit memo too.

I'm afraid I don't understand what you're referring to here, and frankly, I don't think it's a good idea for front-line users (shipping clerks, receiving clerks, warehouse employees) to have access to the item ledgers...

Kowa · 2006-09-27

Fisherman wrote:

I'm afraid I don't understand what you're referring to here, and frankly, I don't think it's a good idea for front-line users (shipping clerks, receiving clerks, warehouse employees) to have access to the item ledgers...

In the Sales Line and Purchase Line there is a field "Appl.-to item entry". If you don't see it in the subform, go to View/Show Column and check it. Selecting a positive item entry here is the only way to override the costing method. There is no lot-costing included in the standard, although some add-ons do provide additional costing methods.

There is no need for anybody in the warehouse to select item entries, but the user typing in the orders must know what he or she is doing. It is very important that everybody who moves items in or out understands the principles of item application, cost - adjustment and its impact on inventory valuation.

Fisherman · 2006-09-27

Thanks for the detail.

You say that there are add-ons that provide more costing methods? Can you point me to where I can find them?

Kowa · 2006-09-27

There is no need for an extra lot costing method. If "Lot Specific Tracking" is checked in the "Item Tracking Code" , the user will be forced to enter this information. In an outbound movement, Navision will then filter the item entries for that lot number and either the first (FIFO, Average) or last (LIFO) entry of the lot is selected automatically, unless you override this with the "Appl.-to item entry".

Fisherman · 2006-09-27

OK.

I'm thoroughly confused now.

We have Lot tracking in the Item Tracking code, and we are assigning Item Tracking Entries during Sales, Purchase, and Production transaction entry. The costs on the line (let's say the Sales Line), however, are assigned as soon as you pick the item, not when we pick the Lot to use... so how is the Lot-specific cost being assigned to that transaction?

Kowa · 2006-09-27

The item cost in the sales line is only an average cost, this is taken form the item or SKU card,but absolutely irrelevant for the actual long term inventory valuation. This is posted as "COGS Amount (Expected)".

For each sales item entry, there are one or more item application entries, connecting this sales to one or more ( if the sales base quantity is higher than the remaining qty ) positive item ledger entries ( purchases, sales credit memos etc.).

These positive item ledger entries have one or more value entries attached to them. These value entries hold the actual cost when the purchase is invoiced. There can be direct unit costs value entries, but extra item charges, rounding entries etc. as well.

The "Adjust cost item entries" report ( has to be run regulary, daily if possible) will then transfer the actual cost from the purchase value entries via the connection set by the item application entries to the sales value entries. The balance of this is shown in"Cost Amount (Actual)" of the sales item entry.

The unit cost in the posted document is not adjusted. All inventory valuation is done basically by balancing the field "Cost Amount (Actual)".

N.B.
If the sales quantity is negative or a sales credit memo is posted ( => positive value entry) the unit cost in the sales line does have a long term influence on inventory valuation. In these cases it must be ensured that this field holds the right value by selecting the "Appl.-from item entry"

Alex_Chow · 2006-09-27

Fisherman wrote:

OK.

I'm thoroughly confused now.

We have Lot tracking in the Item Tracking code, and we are assigning Item Tracking Entries during Sales, Purchase, and Production transaction entry. The costs on the line (let's say the Sales Line), however, are assigned as soon as you pick the item, not when we pick the Lot to use... so how is the Lot-specific cost being assigned to that transaction?

The sales line only gives you the average cost at the time of the entry. It's only an estimated cost.

When you post the sales line and run the Adjust Cost process, the actual cost will be reflected when you drill down to the item ledger and to the G/L.

Fisherman · 2006-09-27

Thanks to both - you've been a big help.

So, by using Lot Tracking, and by running the Adjust Cost Post batch job, you're saying that the actual cost in the Ledgers/GL will be adjusted to the Lot cost of the item?

Kowa · 2006-09-27

Fisherman wrote:

Thanks to both - you've been a big help.

So, by using Lot Tracking, and by running the Adjust Cost Post batch job, you're saying that the actual cost in the Ledgers/GL will be adjusted to the Lot cost of the item?

At the moment I can see no reason why it shouldn't work out. Usually FIFO is used. Note that you cannot change the costing method after the first item movement without doing some compilicated postings and item renaming.

The G/L COGS and inventory accounts will only be touched if "Post Inventory Cost to G/L" is run or if "Automatic Cost Posting" in the inventory setup is checked. Even then "Post Inventory Cost to G/L" has to be run regulary.

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