I know I have been told this several times, but could you once again explain the difference between cost price and unit value in inventory. Where does cost price show and where does value show other than the reports in inventory where both show side by side. Why do we need two values at all when in our system 90% of the items both values are same?
The difference between cost price and unit value in inventory is that unit value is the actual value as per your vendor invoice without sales taxes / GST while cost price is the total amount of money spent without sales taxes / GST to procure the item. Unit value is a financial quantity that matches with your balance sheet one on one. It defines the financial value of your opening stock, current stock and closing stock. It also derives purchase and changes in inventory in your profit and loss account. In simple words it is the legal value of your stock. Cost price is unit value plus all overhead expenses. It includes but is not limited to transportation cost, labor and so on. Unit value cannot change unless there is a formal stock revaluation done. Cost price is a dynamic quantity and based on the settings pre-selected in the system, it can keep changing. Cost price is mainly used to decide the selling price of the product and it appears in all such reports and places where the actual cost is required to be taken into account. If the user has the required permissions to do so, cost price can be altered manually to account for intangible costs like employee time and cost of opportunity etc. Therefore, normally cost price is either the same as value or it is more. However, under exceptional circumstances it can be less as well.
Examples where cost price changes :
Suppose you have purchase an article last month and your vendor invoice showed taxable value Rs 100 per item. Your inventory will show Rs 100 as cost price and Rs 100 as value. You balance sheet as well as your profit and loss account will show Rs. 100. Suppose today you receive an invoice from you transporter for Rs. 10 for the same consignment. After accounting this invoice your cost price will show Rs 110 while your value will stay Rs 100. This extra 10 Rs will show in your indirect expense. Suppose after a while you receive another invoice from labor contractor for Rs. 20 for the same consignment. After accounting this, your cost price for the item will be revised to Rs 130 while value still remains unchanged at 100.
When you see the same product in price lists it will show you cost price as 130 and you can decide your selling price based on 130. If you have set auto-margins on the price list, system will automatically suggest the price based on those margins.
I hope this explains.
If you are not sure about what to do, just accepts all defaults and let Tuhund help you out.
Thank you for the explanation. Do we have any place where we can see table like value, overhead expenses, total cost?
Of course. This is an important report helpful in many ways. There is a “Purchase Cost” button in home page of price management where you see price maps. That takes you to the report where you can see average value, average net cost, average expense, total value, total net cost, total expense for each product. You have a number of filters too that you should explore. It will give you very valuable and elaborate information that very few other ERP systems have.