Costing Methods

The costing method is typically configured for the entire organization, however it can be adjusted by cost center. Costing method options include:

• Last Price

• Average Price

• Standard Price

Each costing method is defined below along with transaction examples. Adjustments and recipe cost calculation are also defined below.

Last Price

The entire stock of an item on hand is evaluated based on the last purchase price of that item in that cost center. Any transaction into the cost center influences the item cost in the cost center value (see transactions 1, 2, 3, 4, and 6 in the example).

All internal transactions out of this cost center (for example transfers or waste) use the last price at the time of transaction booking (see transaction 5 in the example).

Average Price

Average price is the most commonly used costing method. The unit cost (item price in the cost center) is recalculated with every single transaction to be the average of each item and their price over the length of time this cost method has been in place.

Transactions reducing the stock on hand (for example transfer out, usages, or sales) use the current average price of the item at the time the transaction is booked.

Note:

• If an item is returned to the vendor, then there is a recalculation, as it may use a manually entered price and not the average price.

• Incoming transactions (for example transfer in, purchase, or yield) cause a recalculation of the current average price.

Example for Last Price and Average Price

The following table lists transactions and how last price or average price affect the item cost in cost center and the total cost. You can compare the differences in these costing methods by comparing the calculations in the last four columns.

Transaction No.	Item Name	Date	Cost Center	Transaction	Item Price (Transaction)	Quantity	Transaction Total	Stock on Hand Before Transaction	Stock on Hand After Transaction	Item Cost in Cost Center (Last Price)	Item Cost in Cost Center (Average Price)	Total Cost (Last Price)	Total Cost (Average Price)
1	Lemonade	8/1/21	Bar	Purchase	$1.00	5	$5.00	0	5	$1.00	$1.00	$5.00	$5.00
2	Lemonade	8/1/21	Restaurant	Purchase	$1.50	5	$7.50	0	5	$1.50	$1.50	$7.50	$7.50
3	Lemonade	8/2/21	Bar	Purchase	$1.25	5	$6.25	5	10	$1.25	$1.25	$12.50	$11.25
4	Lemonade	8/2/21	Restaurant	Purchase	$1.00	5	$5.00	5	10	$1.00	$1.25	$10.00	$12.50
5	Lemonade	8/3/21	Bar	Transfer out	$1.25	1	$1.25	10	9	$1.25	$1.25	$11.25	$11.25
6	Lemonade	8/3/21	Restaurant	Transfer in	$2.00	1	$2.00	10	11	$2.00	$1.32	$22.00	$14.50

Standard Price

Standard price is used to evaluate some or all items using one predefined price and is not based on calculated prices.

Purchases use the vendor prices as usual, but all internal transactions from a cost center using standard price use the defined standard price per item.

Transaction No.	Item Name	Date	Cost Center	Standard Price	Transaction	Item Price (Transaction)	Quantity	Transaction Total	Stock on Hand Before Transaction	Stock on Hand After Transaction	Item Cost in Cost Center	Total Cost
1	Lemonade	8/1/21	Bar (standard price)	$5.00	Purchase	$1.00	5	$5.00	0	5	$5.00	$25.00
2	Lemonade	8/1/21	Restaurant (average price)	Undefined	Purchase	$1.50	5	$7.50	0	5	$1.50	$7.50
3	Lemonade	8/2/21	Bar (standard price)	$5.00	Purchase	$1.25	5	$6.25	5	10	$5.00	$50.00
4	Lemonade	8/2/21	Restaurant (average price)	Undefined	Purchase	$1.00	5	$5.00	5	10	$1.25	$12.50
5	Lemonade	8/3/21	Bar (standard price)	$5.00	Transfer out	$5.00	1	$5.00	10	9	$5.00	$45.00
6	Lemonade	8/3/21	Restaurant (average price)	Undefined	Transfer in	$2.00	1	$2.00	10	11	$1.32	$14.50

Example for Standard Price

The main warehouse of a restaurant group purchases french fries for $10.00 and then transfers them for $12.00 to the individual restaurants. That way the operational costs of the warehouse are covered.

Standard price is used when:

• Purchases into the warehouse are done using the normal vendor purchase prices.

• The warehouse is configured to use the standard price costing method.

• The restaurants are configured to use last price or average price.

Purchases from any source other than the warehouse causes a normal recalculation of the item cost in the restaurant.

Adjustments

The most common way to book freight charges and other item-related costs is to use adjustments. These adjustments can be configured in different ways. One way is to “adjust” the purchase price.

For example, you can split freight charges to all affected items and the item price is adjusted by adding the freight cost. This is then used to calculate the last price or the average price. The defined standard price is not changed if using adjustments.

See Adjustment Types for information on how to configure adjustments.

Recipe Cost Calculation

Displayed Cost of Sales

The cost of sales per recipe shown in the recipe record is based on the cost center defined in the recipe itself.

For example, if the selected cost center is configured to use standard price, this will be used to calculate the displayed cost of sales.

Cost Calculation at Stock Reduction

During all production processes (for example, sales or production) the system uses the cost center’s costing method to calculate the real cost of sales. The cost center’s costing method does not affect the cost prices used in production, it is just used for the display cost.