Navigation:  Key Concepts > Inventory Management > Basis For Price Markups

NOTE: It is not recommended to SWITCH options indiscriminately.  Once products are received, one should maintain the desired setting.

These options are available under System Setup: Inventory: Pricing

Using Cost or Average Cost

Here is a product which has been received at various times at various costs each time the PO was received.

The first time the cost was 7.00.

The second time was a manual adjustment (when using Verify/Adjust button always enter a total on hand).  Because an extra item was found the clerk entered 3 in stock thereby utilizing the two on the purchase order and adding 1 as a manual adjustment..

The third time the item was received, the vendor cost had increased to 7.29.

NOTE: Cost or Average was activated in System Setup: Inventory: Pricing

Cost - Cost is the price you pay for the item from the vendor.  POSitive uses a First In, First Out (FIFO) method of tracking product costs.  When an invoice is made, the oldest inventory (listed first) item is selected.  Using the example above, the cost of the item will be 7.00.  When those first three items are sold, then the cost on the next sale will be 7.29 and will continue as such until all four of those items are sold.

Note that the Last Cost and Unit Cost will be the same.

 

Average Cost - Average Cost is the sum total of the costs of all items in stock divided by the number of items in stock.

Each time an item is ordered, the true cost of the item is recorded.  If the cost of an item changes from purchase order to purchase order, then an average cost will be recalculated and would be more reflective of the item cost.  As items are sold, the average cost will not change as stock counts change until a new purchase order is received.

The average cost is based directly upon the number of items in stock at the time of receiving more items on a purchase order.

Note that the Last Cost is constant, and the Average Cost will not fluctuate as items are sold.

 

Using Landed Cost or Include Average in Landed

NOTE: Landed or Average In Landed was activated in System Setup: Inventory: Pricing

AGAIN: It is not recommended to SWITCH options indiscriminately.  Once products are received, one should maintain the desired setting.

The first time the item was received the cost was 7.00.

The second time was a manual adjustment (when using Verify/Adjust button always enter a total on hand).  Because an extra item was found the clerk entered 3 in stock thereby utilizing the two on the purchase order and adding 1 as a manual adjustment..

The third time the item was received, the vendor cost had increased to 7.29. However, there was a Freight Charge calculated into the cost of the item, hence the new cost is 8.0401.

 

Landed Cost - Landed Cost is the price you pay for the item from the vendor plus a proportionate amount of the shipping charges on the purchase order.  Note: Shipping charges can be distributed over the number of pieces or by other options such as weight or price.

TIP: If you choose Landed Cost, be sure to make a selection on the System Setup: Purchase Orders section to determine how to calculate the landed cost.

When you edit the inventory item, the most recent Landed Cost is displayed.

Note that the Last Cost is constant, but the Landed Cost includes the freight charge.

 

Include Landed in Average - Include Landed in Average Cost is calculated only once, at the time product is received on a PO.  If there are existing items in stock, the costs of all the existing items plus the cost of the newly received items are averaged together to create a Landed Average Cost.

 

In this example above, there are 7 inventory items with an average cost of 7.5943.  This is average is evident by choosing to edit the inventory item.  Directly below the Last Order Cost field is a calculated Unit Cost field.

 

Note that the Last Cost is constant, but the Landed In Average Cost includes the freight charge  This will average cost NOT change as items are sold.

 

If no other purchase orders are received, this Average Landed Cost of 7.5943 will remain for all items sold.  .

 

NOTE: If the item was received on a PO at the WRONG cost either because of a typo or because the true freight costs were not known at the time, choosing to edit the PO and changing the costs or freight amount after the fact will NOT recalculate or change the Average Landed Cost value immediately.