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Including Expected Costs such as Freight and Duty WITHIN Standard Cost Amount

  • 1.  Including Expected Costs such as Freight and Duty WITHIN Standard Cost Amount

    Posted 9 days ago
    Moving to standard cost and looking for help regarding how to accurately reflect the total expected cost of purchased items by including costs associated with importing the goods, such as freight and duty costs.  How (within NAV) are those freight and duty burdens applied to the standard cost amount and how is it recorded when the goods are received into inventory?  Do you recognize liabilities for the freight and duty at that time?  Are you using spreadsheets and journal entries?  Is there an AddOn?  Thanks in advance for all ideas and help offered!

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    Janee Baker
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  • 2.  RE: Including Expected Costs such as Freight and Duty WITHIN Standard Cost Amount

    Posted 8 days ago
    Hi Janee,

    To Include costs such as Freight and Brokerage into your items you should use Charge(Item).  When you use a Charge(Item), you assign it to an Inventory receipt (either in the same PO or separately).  This increase the cost of your item to get the true Landed Cost.  Then when you run the Adjust Cost - Item Entries, this updates the costs on the item whether it has been used or not.  This is also the first step in running your Standard Cost Update which should be run periodically depending on how often your costs significantly fluctuate.

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    Jenifer Elliott
    Senior Application Consultant
    Technology Management Concepts
    807 Parkview Drive North, Suite 150
    El Segundo, CA 90245
    Phone: 831.277.3280
    Email: jelliott@tmc-la.com
    Website: www.abouttmc.com







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  • 3.  RE: Including Expected Costs such as Freight and Duty WITHIN Standard Cost Amount

    Posted 8 days ago
    Thank you, Jenifer.  Is this the scenario you described?

    3 Purchase Price (Unit Cost)
    2 Freight
    1 Duty
    = 6 Standard Cost

    On inventory receipt the below GL activity happens?
    6 Dr Inventory
    -3 Cr Inventory Payable
    -2 Cr Freight Payable
    -1 Cr Duty Payable

    When the invoices for the above are processed, they are applied to the item charges and hit the above GL accounts for Inventory, Freight, and Duty Payables.  The purchase price variance is already captured in a PPV account but the freight and duty variances may have to be moved quarterly into variance accounts?


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    Janee Baker
    R. L. Hudson
    Broken Arrow OK
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  • 4.  RE: Including Expected Costs such as Freight and Duty WITHIN Standard Cost Amount

    Posted 8 days ago
    Hi Janee,

    Yes you have the understanding now of what this will do.  I can't speak to what GL Accounts get hit as that depends on your General Posting Setup.  You can always add a Charge(Item) on a new Purchase Invoice and link it to the proper receipt even if you have sold those inventory items.  Running the Adjust Cost - Item Entries goes back in time (that you define) and updates your costs throughout the system.  This way you don't have to estimate freight and brokerage costs, just use the real bills from the vendors.

    ------------------------------
    Jenifer Elliott
    Senior Application Consultant
    Technology Management Concepts
    807 Parkview Drive North, Suite 150
    El Segundo, CA 90245
    Phone: 831.277.3280
    Email: jelliott@tmc-la.com
    Website: www.abouttmc.com







    ------------------------------



  • 5.  RE: Including Expected Costs such as Freight and Duty WITHIN Standard Cost Amount

    Posted 8 days ago
    Just to clarify Jenifer's detailed solution, it's the Vendor Posting Setup. Everything else is Spot On!

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    Alfredo Zelaya
    Megadyne Americas LLC
    Fairfield NJ
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  • 6.  RE: Including Expected Costs such as Freight and Duty WITHIN Standard Cost Amount

    Posted 8 days ago
    Edited by Janee Baker 8 days ago
    This sounds as though the adjust cost entries will affect the cost of the items?  But with the example I gave above, actual costs for price/freight/duty should not change the standard cost of the item.  For example, if the freight invoice comes in at $5, 2 of it offsets the burden amount (^above), while 3 should go to a freight variance account.  NAV can do this?  It can recognize that there is an expected freight cost of $2 when the inventory is received (a liability)?

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    Janee Baker
    Financial Analyst
    R. L. Hudson
    Broken Arrow OK
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  • 7.  RE: Including Expected Costs such as Freight and Duty WITHIN Standard Cost Amount

    Posted 7 days ago
    Hi Janee,

     If you have Expected Cost turned on and you receive a PO at say 1.00, the items have a temporary cost of 1.00.  When the receipt is purchase matched that cost might change to say 1.10.  The Adjust Cost - Item Entries goes back through the system and updates the cost of these items to 1.10.  When you add a freight bill to these items, the cost would increase again to say 1.50.  There is no way for NAV to know what amounts you want to go to variance unless I'm not understanding your question.

    ------------------------------
    Jenifer Elliott
    Senior Application Consultant
    Technology Management Concepts
    807 Parkview Drive North, Suite 150
    El Segundo, CA 90245
    Phone: 831.277.3280
    Email: jelliott@tmc-la.com
    Website: www.abouttmc.com







    ------------------------------



  • 8.  RE: Including Expected Costs such as Freight and Duty WITHIN Standard Cost Amount

    TOP CONTRIBUTOR
    Posted 8 days ago
    Currently we use standard cost for all items.

    We include all freight and logistics costs as part of our standard cost on the item card. In order to allow for easy tracability as to the standard cost buildup we have added fields to the it card to list Total Purchase Cost ( price of prefered price from preferred vendor) and a Purchasing Burden ( cost of all logistics to receiving dock) then add them together to arrive at Total Purchase cost which is then added ( manually) to the standard cost field. A soft warning is posted if they don't equal when you close the card.

    If the vendor invoice does not reflect a delivered price  this will yeild a false PPV in the PPV GL account. to counter that we record all freight and duty paid in seperate GL accounts and create a net PPV in the P&L similar to your Scenario, Janee.

    A main difference is we don't setup freight and duty payables as balance sheet accounts but as P&L variance account. This creates the possibility of timing difference but with the quickness of the turnaround of freight ( ok , not so much in customs duty!) we consider the impact to be immaterial. ANd it saves tons of time in doing kinda make work reconciliations. Depending on your business model YMMV.

    I have never been clear how Landed Cost and Item charges function in a standard cost environment - how does landed cost effect standard costs on purchased parts for logistics when standards on Purchased parts are set manually?



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    Michael Carr
    VP , Finance
    Philadelphia Scientific LLC
    Montgomeryville PA
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  • 9.  RE: Including Expected Costs such as Freight and Duty WITHIN Standard Cost Amount

    Posted 7 days ago
    Thanks Michael.  So ultimately you have large favorable variances in your PPV account (assuming no ACTUAL purchase price variance) and unfavorable variances (actual invoices) in your freight and duty accounts?  How are you able to determine where your variances are coming from down to the item level for freight or duty?  Is this where the item charge field is being used (for capturing the actual charges at the item level)?

    ------------------------------
    Janee Baker
    Financial Analyst
    R. L. Hudson
    Broken Arrow OK
    ------------------------------



  • 10.  RE: Including Expected Costs such as Freight and Duty WITHIN Standard Cost Amount

    TOP CONTRIBUTOR
    Posted 7 days ago
    Janee,

    That's the weakness of simplifying the process is you do lose or make extremely difficult the ability to analyze the variances. It's not be a huge issue for us.

    For Standard cost, although I personally have not used it , the land cost functionality probably simply adjusts the actual cost of the raw material on the invoice posting and creates a new variance posting since the standard doesn't change - thus why it's imperative to run the adjust cost - item entries. I will have to try to test that out in my sandbox.

    I haven't attempte to use because our purchasing isn't managed to that extent and it has been difficult to have personell to use the simplyfied process as it is.

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    Michael Carr
    VP , Finance
    Philadelphia Scientific LLC
    Montgomeryville PA
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  • 11.  RE: Including Expected Costs such as Freight and Duty WITHIN Standard Cost Amount

    TOP CONTRIBUTOR
    Posted 7 days ago
    I just helped a client that is using standard cost. On their POs any difference in purchase price from standard cost went to the purchase price variance account as expected. When they did invoices for freight using item charges, the amount of the item charge went directly to variance. As Michael stated this distorts the PPV.

    It would be a nice feature to be able to breakdown standard costs on purchased items to go to different variance accounts by item charge much like production has capacity and material variance. I see the complexity in defining and processing these different variances but that would be a super enhancement!

    In order to identify the variances for freight, duty, etc, remember that you can use the value entries with filters to get information for a reclass general journal entry.

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    Kim Dallefeld
    Kim@Dallefeld.com
    Dallefeld Consulting, LLC
    Member of Dynamics Consulting Group
    Ft. Worth, TX
    2019 NAVUG Board of Advisors
    Past NAVUG Board Chairman
    NAVUG Programming Committee
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