Creating Cost Categories

Cost category records are used to classify different types of costs associated with your items. Using cost categories helps you to track costs and variances in the manufacturing workflow.

For example, you manufacture widgets to sell to your customers. When you manufacture a widget, you assemble materials made of wood and metal and then paint the widget after it is placed together. For accounting purposes, you want to track the cost of each material and service you use to create each widget. To do so, you can create cost categories that define several kinds of costs that can be incurred during widget manufacturing.

You might create cost category records such as the following:

• Material: Metal

• Material: Wood

• Labor: Painting

After the cost category records are created, you can then assign a cost category to each item and material you use. Cost category assignment might look like the following:

Item Name	Description	Cost Category
Item AB1001	Wooden Widget Component 1	Material: Wood
Item AB1002	Wooden Widget Component 2	Material: Wood
Item AB1003	Metal Widget Component 1	Material: Metal
Service Item XY2002	Widget Painting	Labor: Painting

After each item has a cost category specified, it is easier to track total costs for each category. When you process a production run of widgets, you know how much was spent on wooden materials. You also know how much was spent on metal materials, and how much was spent on service labor to produce the widgets you created.

Additionally, when there are variances in production costs for assembly items, the variances can be tracked by cost categories. For example, you process a production run of widgets and the cost for that run is much higher than you expected. You know that a higher cost for the components in the Material: Wood category were the cause of the cost overrun.

Cost categories can be specified on each item record.

The Cost Category field is available only for these item types: Inventory, Non-inventory, Service, and Other Charges.

• Inventory items can have only one material cost category.

• Service items can have only one service cost category.

• Assembly items can have more than one cost category because assembly costs are defined by the component members. The cost amount and cost category of each component member of an assembly is used to calculate the cost of the assembly. It also identifies the categories associated with it. This calculation process is called a cost rollup for assemblies. For more information, see Standard Cost Rollup.

When the Standard Cost feature is first enabled, NetSuite automatically creates one cost category. This category is used by default for all new inventory, assembly, and service item records you create. You can add more cost categories as needed.

To create a cost category:

1. Go to Setup > Accounting > Setup Tasks > Accounting Lists > New.

2. Click Cost Category.

3. Enter a name for the category.

4. Select a Cost Type.

   The Landed option is only available when you enable the Landed Cost feature.

5. In the Expense Account field, select the appropriate default expense account to be used as a clearing account for the landed cost of items. Then, after the item is sold, the cost of goods sold is accurately reflected.

   This field appears only when you select Landed as your Cost Type. An expense account cannot be associated with a material or service type cost category. You do not have to associate a landed cost category with a Cost Of Goods Sold (COGS) account. The landed cost category account is intended as a holding account.

   When landed cost is allocated, it posts to two accounts:

   • the asset account of the item

   • the landed cost category account

   That posting is balanced out by a purchase line, either on the same bill or another purchase transaction, such as a shipping bill. The costing is accounted for in the COGS account of the item after the item is sold.

   Important:

   If the Expand Accounts preference is enabled, you can choose any account, not only bank accounts or expense accounts.

6. Check the Inactive box only if you do not want this category to show in lists.

   A cost category can only be inactivated if there are no items associated with that category.

7. Click Save.

   Now, you can select this cost category on item records and landed costs can be included on receiving transactions.

Related Topics

Standard Costing Workflow

Standard Costing Example

Enabling Standard Costing

Creating Inventory Cost Templates

Setting Up Item Records for Standard Costing

Defining Cost Versions

Entering Planned Standard Cost Records

Standard Cost Rollup

Revalue Standard Cost Inventory

Standard Costing and Transactions

Assembly Build Production Cost Variances

Standard Costing FAQ

Standard Costing Reporting

Standard Costing

General Notices