The cost of a product can be calculated at any time, as needed according to the accounting policies of the company.
It is recommended that actual cost is calculated at the end of the period in which all operations have been completed, meaning all incoming and outgoing invoices have already been posted for this period. For example, the calculation date can be the last day of the previous month.
The costing method can be set up in the menu My Company -> Settings -> Company profile -> General Info. The two most common methods used for inventory valuation are AVG (Weighted Average Cost method) and FIFO. More information about costing methods can be found here.
To start the product cost calculation go to Warehouse -> Product Cost, enter the date and click on the "Calculate Now" button.
Before calculating a product cost, make sure that all shipments prior to the calculation date are closed. Any pending shipments can be found at Warehouse -> Documents -> Waiting for Approval
If any of the documents related to the movement of goods is issued, revised or deleted prior to the date of product cost calculation, such product cost calculation will be deleted along with all its journal entries, and the product cost will need to be calculated again.
When a new product cost is calculated, the previous calculation is retained in the product cost calculation history with the status Voided; the calculation record itself is never lost. Its journal entry, however, is treated according to its status: if that entry was approved, it remains posted in the ledger, but if it was still Waiting for approval, it is removed when the new calculation is made, because its result is recalculated and carried into the new entry.
If the perpetual inventory method is used and a product does not yet have a defined standard cost, its standard cost will be set to the calculated cost. More information about perpetual and periodic inventory can be found here.
Product cost calculation runs in the background, meaning the user can start one, switch to some other activity, and then go back and see the results. Upon the completion of product cost calculation, a journal entry is generated with a status of “Waiting for approval”.
The completed product cost calculation contains the following tabs:
Products
Standard Cost Valuation (for perpetual inventory only)
Price List Markup
Journal Entries
The Products tab contains a list of products, closing quantity as of the date of their cost calculation, the cost of each product, and the stock cost as of the date of its cost calculation.
The Standard Cost Valuation tab is available for companies using the perpetual inventory method. It has filters for evaluating a cost variance between the standard cost of a product and its actual cost. By clicking on the Update standard cost button you can update the standard cost for the filtered products to the actual calculated cost.
The Price List Markup tab contains filters for markup analysis (the difference between the cost of a product and its selling price) enabling the user to see if the selling price of a product needs to be changed when its cost changes. By entering a new markup and clicking on the Update button you can update the selling prices for the filtered products.
The Journal Entries tab contains a journal entry for the current cost calculation. The entry is created with a status of Waiting for approval. To review the entry for accuracy, click on its number. A window will open giving you a general view of the entry. By clicking on the magnifying glass icon, you will get a detailed view of the entry in the context of products. Having made sure the entry is correct, click Approve.
Important: a product cost calculation is not complete until its journal entry is approved. As long as the entry remains in the status "Waiting for approval", it is not posted to the ledger. This means the calculated cost of goods sold will not appear in the Profit & Loss statement, and the period's results will be understated, even though the calculation itself has finished running. Approving the entry is not an optional review step – it is the action that records the cost in your accounts. After running a calculation, always open the Journal Entries tab, review the entry, and click Approve. Only then is the cost reflected in your reports.