Analyzing Inventory Costs in Dynamics 365 Business Central
Properly controlling and analyzing inventory costs is just as important as setting the proper selling price of inventory. When organizations calculate profitability by item or category they will often have an inaccurate picture of their true cost of inventory. The cost of shipping and receiving goods is full of hidden costs such as customs & duties, transportation cost, and insurance just to name a few. In Business Central a charge item can be used to properly record an additional landed cost and update the inventory cost layer for the received good. This can be accomplished days or even weeks after the item has been received.
In order to accomplish this first setup a charge item:
- Navigate to the Item Charges window and setup a new charge
- In this example we will choose a generic charge of FREIGHT
- Enter a Product Posting Group in the event that you would like to directly expense Freight Fee’s at the time of entry.
To demonstrate we will work thru an example where we have received 500 units of Item 1000 into inventory at a cost of $50,000. This is a Unit Cost = $100.
If I review my value entries I can see an inventory Cost per Unit of $100.00
In this example we had to contract an LTL freight provider to deliver the goods to our warehouse. They have invoiced us an additional $5,000 which includes freight and insurance. We will enter a Purchase Invoice for this additional charge and use our FREIGHT Charge (Item).
Next, from the Lines submenu we will choose LINE | RELATED INFORMATION | ITEM CHARGE ASSIGNMENT
We will then choose ITEM CHARGE | GET RECEIPT LINES from the Item Charge Assignment window. This will open a window where we can select the appropriate purchase receipt to allocate the item charge.
Once the receipts have been selected there are several tools for allocating the cost based on weight, units or qty. This allows flexibility in how quickly these landed costs can be distributed to the underlying inventory receipts.
Once the invoice is posted the inventory cost layer from the originating receipt will be amended with the additional cost of the freight and insurance. A review of the receipt line will now show the aggregation of both the receipting cost per unit (@100) + the additional freight/insurance cost per unit (@10).
Utilizing charge items you can ensure that item profitability is timely and accurate. You can even setup multiple charge items to further analyze the incremental costs of receiving.
- For more information please email Chris Zeiler, ERP Practice Lead at
