Which accounting method is used to determine product cost in reports?

This article provides users with an outline of how the cost of items is determined on reports.

Overview

For Cost Of Goods Sold (COGS)-based reports, the cost of products is determined by the Accounting Method selected for the COGS Account Category on the COGS Maintenance page. The brand chooses the accounting method for the COGS Actual Usage and Inventory Value.

• FIFO (First In, First Out): The oldest product and its purchase cost are depleted first. This method determines the ending inventory cost and actual usage value.

• Market Value: The most recent bid file price of an item(s) on a store’s order guide.

  • The bid file price is updated weekly for distributors who have electronic integrations established with Decision Logic.

  • The bid file price is updated manually or through the Received Prices report for non-electronically integrated distributors.

Why are different methods used on different reports?

Consider reports that use Market Value as “What is the estimated cost of this if I were to order/replace this amount of product today?”

• It is essential to ensure that order guides and bid file prices are up to date because of the changes in replacement costs.

• Electronic distributors provide the coming week’s estimated price of the item(s) they expect the store to order.

• This method encourages managers to be proactive in operations to keep margins stable and control costs.

In reports that use FIFO, the usage cost reflects the product cost from the past, leading to more reactive control costs.

Table of Contents

Reports

The reports with the Accounting Method labeled “COGS Maintenance selection” are defined by the brand. The rest are uneditable.

[*] see the Variance Cost section of this article for more details

Variance Cost

Decision Logic is designed to help you manage products. Variance cost exists to sort ingredients or categories to help identify where attention should be given to reduce product usage variance.

Actual Usage vs. Recipe Usage Variances:

• Unit Variances use the bid file recipe multipliers for an ingredient to convert receipt units to inventory units. The bid file multipliers come from the last order received in an inventory period.

• Variance cost is how much it would cost to replace the ingredient based on the prices of the items displayed on a store’s order guide. It applies Market Value to the Unit Variances.

Recipe and inventory units need a common denominator to compare inventory and recipe usage. Market Multipliers are used for Market Value to convert ideal/theoretical usage recipe unit costs to inventory unit costs.

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