When working with commodities, there are two types of cost to maintain:
The cost at which the commodity is valued in inventory. This value is used when calculating the costs for manufacturing activities in which the commodity was consumed.
The cost of the commodity as paid to the vendor from whom the item was purchased.
Unlike other types of raw materials, the cost of a commodity is often derived from one or more cost factors. A cost factor is similar to a market price in that it represents a standard rate at which cost is calculated. Cost factors are dynamic values subject to fluctuation.
Cost factors are not necessarily defined for the commodity itself, but rather for a particular property of that commodity. If you can record variations in such a property with individual units or lots of a commodity, different commodity costs are calculated even though the same cost factor is used. It may also be that different cost factors apply to a commodity depending on how it is consumed in production.
You can choose whether to calculate a commodity's inventory cost, purchase cost, or both according to these cost factors.
Commodity cost components and classes
The cost factors used to calculate commodity costs are defined for commodity cost components. A commodity cost component is a property or characteristic of a commodity that determines cost. You can link a commodity cost component to a quality control test so that recorded test results affect the calculated cost of individual item lots.
Commodity cost components are grouped into commodity classes. The cost factors defined for commodity cost components are entered for every class to which the component is assigned. For example, if the same cost component is assigned to three different commodity classes, you maintain three separate cost factors for that component.
When a commodity item appears on a production BOM or a purchase line, it has an assigned commodity class. The program uses the cost factors entered for the class's defined cost components to calculate the cost of the commodity on a particular production or purchase activity. Because commodity classes are assigned to specific activity lines, you can calculate different costs for a commodity on each transaction. For example, enter a separate commodity class on each production BOM line for a commodity if you want to cost that commodity according to the manufacturing process in which it is consumed.
Commodity receiving
You receive a commodity on a commodity manifest, which combines purchases from several vendors into a single receipt amount. By lot-tracking a commodity, you can differentiate between the original purchases and the receipt. The commodity lot received into inventory is assigned to consumption lines when you record production activities. Purchase lines for the commodity contain the lot assigned for each individual vendor purchase.
This differentiation is particularly important if Quality Control tests play a role in determining a commodity's cost. Because Quality Control test results are recorded against individual lot records, the test results used to calculate the cost of a commodity consumed in production may differ from the test results used to calculate the cost of a commodity on a purchase line.
Although different lot numbers are recorded on commodity purchases and receipts, Microsoft Dynamics 365 Business Central item tracing capabilities maintain the relationship between these item lots. This is important not only for lot traceability but also for costing, as it may be necessary to reconcile differences between a commodity's inventory value and the amount on the related purchase orders.
Cost periods
The commodity cost factors used to calculate the cost of a commodity are typically not known at the time of receipt. These cost factors may be determined by an outside party, such as a government or industry agency, and usually fluctuate on a periodic basis. The commodity cost factors for a particular period are often not made available until after that period ends. As a result, the time between a commodity's receipt and when its final cost is known can be significant.
Set up commodities as standard cost items in Microsoft Dynamics 365 Business Central. When the commodity is initially received, its value is determined from this standard cost.
Once new cost factors for a commodity become available, set up a cost period in the Commodity Cost Periods page. Establish cost factors for each commodity cost component assigned to a commodity class. Then instruct the program to use the new cost factors to update the cost of commodity entries posted during the cost period. The program updates the value of consumption entries according to the commodity class assigned on the related production BOM line. The value of the corresponding positive ledger entry to which the consumption entries were applied is adjusted accordingly.
You can also use these new cost factors to update the cost of commodities on purchases. Make this adjustment according to the commodity class assigned on each purchase line. Update each document individually or use the Update Commodity Orders batch job to adjust several purchases at once. When you invoice the purchase, the program records an adjustment to the value of the purchase entry in the item ledger.
When you calculate both inventory and purchase costs for a commodity item, there may be a discrepancy between these values. For example, if you calculate a commodity's inventory value using one commodity class but determine the cost of the commodity on the related purchase lines using a second class, you obtain different values. During the posting of purchase orders for a commodity, the program uses the assigned lot tracking numbers to identify the related entries in the item ledger, then records Anywhere Mobility Solutions differences between the commodity's purchase and inventory values in the appropriate G/L account.