Where are my item costs coming from? You may have asked this after entering a purchase order, a sales order or an inventory transaction, and noticed that the cost of the items entered is not as expected. For example, the user may intend for the cost of an item to be zero, yet the system displays a nonzero cost for that item during purchase order, sales order or inventory transaction entry. It is the valuation method of an item that determines which type of cost will be used in the Purchase Order, Sales Order, and Inventory modules. Depending on the module, there is a definitive cost hierarchy, based on the item’s valuation method, used to determine the final cost for the item.

For the Purchase Order module, the cost hierarchy is as follows:

Vendor price levels

For standard and average cost items in Purchase Order Entry, Receipt of Goods Entry, Return of Goods Entry, Material Requisition Issue Entry, and material requisitions entered in Purchase Order Entry, the cost hierarchy specified below for the Standard Valuation or the Average Valuation method is used.

For LIFO/FIFO/Lot/Serial cost items

a. The vendor last cost is used.

b. If the vendor last cost is zero, or no vendor is assigned to the item, the item last cost is used.

c. If the item last cost is zero, the cost hierarchy specified below for each valuation method is used.

In the Auto Generate Orders Selection window, when selecting 'Update Unit Cost With'

a. Standard Default or Last Unit Cost: the primary vendor's last cost is used.

b. Standard Unit Cost: the item's standard cost is used.

c. Average Unit Cost: the item's average cost is used.

d. If any of the costs are zero for the above selections, the unit cost used will follow the cost hierarchy based on the valuation methods listed below.

For the Sales Order and Inventory modules, the cost hierarchy is as follows:

Standard Valuation - the standard cost from the Inventory masterfile is used. If the standard cost is zero, the unit cost defaults to the last cost. If the last cost is zero, the unit cost defaults to the warehouse average cost. If the warehouse average cost is zero, the unit cost defaults to the item average cost.

Average Valuation - the warehouse average cost from the Inventory masterfile is used. If the warehouse average cost is zero, the unit cost defaults to the item average cost. If the item average cost is zero, the unit cost defaults to the last cost. If the last cost is zero, the unit cost defaults to the standard cost.

FIFO/LIFO/Lot/Serial - the vendor last cost is used. If there is no vendor last cost then the last cost from the Item Costing file is used. If the last cost is zero, the unit cost defaults to the standard cost. If the standard cost is zero, the unit cost defaults to the warehouse average cost. If the warehouse average cost is zero, the unit cost defaults to the item average cost.

Note: In the Sales Order module, the cost to apply is determined during the Sales Journal update. When using a pricing method that is a markup percentage or a markup amount and the standard cost is zero, the cost hierarchy is used to determine the unit price.