A sales price or an invoice amount is easy to track and report on.  Once a sales transaction is done the total amount is the total sale.  That’s it.  But when we look at the cost of that sale in order to arrive to a profit the equation becomes a lot more fuzzy.

If we do not keep our eye on the profit, then there is not much need for a sophisticated ERP.  So let’s dive a little bit into one aspect of costing as it pertains to NAV.

When the salesperson creates a sales order, NAV will go and get the Average Cost for that item at that time and put it in the “Unit Cost(LCY)” field on the sales line.  This field will not change during the process of the sales order all the way through posting into an invoice.  This cost was correct at the time of entry, but could definitely be inaccurate when the sales order is posted, since time has passed between creation and posting.

 

You might ask why NAV does this.  The best rationalization I can think of has to do with sales commissions.  When the salesperson is creating the order, the system is reporting an estimated profit.  The salesperson will of course price out the item according to the cost estimate.  If the cost were to change later on, then the basis of the salespersons pricing is no longer the same.  If NAV would not record the cost and keep it unchanged, then we would not know on what basis the salesperson came up with the price.  Also, some companies might want to pay commission on the estimated cost rather than the actual cost, and thus not penalize the salesperson for unknown cost adjustments.

 

NAV has a two level item ledger, keeping track of item transactions and fluctuations on cost for those transactions.  Therefore an item transaction can have one cost today and a different cost tomorrow, if for example, a freight charge would be applied to the cost tomorrow.  Therefore the cost can change for a single item transaction.

 

To sum these things up: If you report out of the sales system (Customer Ledger Entries) then the profit is a snapshot of the cost of the item when the sales order was created.  On the other hand, if you report out of the inventory system (Item Ledger Entries), then the cost is the actual cost at that time.  These reports will not tie, but there is a good reason for it.

 

On a side note… I said in my first paragraph that the sales amount is easy to figure out.  Well, it is not quite true when it comes to NAV.  NAV is a very well designed system.  The designers have kept in mind the symmetries found in the ERP process.  I.e. purchase is just a sale backwards and so on.  As with landed cost being applied to the cost of an item, you can actually use the same concept to the price of an item.  I.e. make a price adjustment at a later day to the actual transaction.  This will of course be reflected in the inventory system, but again the sales system will stay as is, and reflect a separate transaction for the credit memo.