Average Cost vs Standard Cost for Sales Reporting

[stevecoles64]

We currently use Average Cost for Inventory and Sales.

Our problem is that the Average Cost isn't the true cost - it isn't capturing all of the costs in the item. This artificially increases the recorded Gross Profit in Sales reports because the Cost is lower than the true Cost.

To overcome this we are thinking of moving to Standard Cost. This will allow us to include a factor for additional costs we need to recover (such as Port Charges for imports)

The question - how is the Gross Profit on sales reported for the Salesperson?

Does it reflect the Average cost as before, or the Standard cost?

[Mike_James]

Hi @stevecoles64 , my suggestion would be to investigate how to include such charges (freight,  psc etc.) in each purchase,  so that your inventory is correctly valued from the start. Then you can continue using average cost and the valuation basis will be GAAP compliant. 

[stevecoles64]

Thanks Mike. You've hit the nail on the head.

I'm not the accountant, I'm just the sales manager trying to get an accurate GP report on sales.

Right now all of our inventory is undervalued because it only includes the original supplier's invoice cost, not the Port Charges, Customs Agent Fees etc.

The accountant can't work out how to include costs from various sources into an Inventory Item. My idea was to change to a Standard Cost with a factor to cover the other costs, but that may not be the answer we need. It won't be 100% accurate but better than we have now and good enough for Sales/GP reporting.

Is there a right way to capture all of the costs in the Item?

[Mike_James]

Hi @stevecoles64 , have a look at this help topic:

https://help.myob.com/wiki/display/ar/Landed+costs+for+imported+inventory?searchfacet=support:help&s...

[stevecoles64]

@Mike_James 

Thanks Mike. I think that's the answer. I'll go through it with our internal accountant today.

Thanks for your help.