I am a frequent contributor to the Dynamics 365 Community. For those of you how does not know what it is – it is a website run by Microsoft offering a lot of content around the Dynamics products. There are also user forums where you can ask questions around the use of your Microsoft Dynamics product and discuss with other users and experts. A lot of users find this a very useful and helpful places to raise questions and discussions. Business Central got its own corner in this community and you should really check that out if you have never visited it. I found the inspiration for this blog post from a question that was raised by one of the forum users.
For companies working with trade it is essential to implement good practices for handling cost of items both for inventory value purposes but also for reporting the correct profit for goods sold.
Business Central offers a wide range of functionality for handling this. But sometimes it can be hard to determine the best approach for each individual business case. And although a lot of trade businesses have a lot of similarities they also have their different needs and ways of working.
The cost mechanism i will discuss in this article is the use of indirect cost. People can use different terminology for things but for the purpose of this article i will define landed cost as the sum of the direct cost we pay to our vendor and indirect cost that can be shipping and handling etc.
Item charges can be one way to handle indirect cost in Business Central. I will not discuss the uses of item charges in this article instead i will focus on the indirect cost that can be defined on the item card in Business Central. We will have a look at how it is set up, how it works when we post and the effect is has on our reporting of sales profit.
Let us start by taking a look at our item card.
I have also indicated that the “Unit cost” for the item is 10 – this should mean that my landed cost for this item should end up as 10 + 20% = 12.
What will happen is that Business Central will post an amount equal to the percentage i have defined as indirect cost for every purchase i do on this particular item.
General posting setup
As we can see in the item card shown above the item I am working on have the “Gen Prod. Posting Group” set to “Retail”. So in order to decide where my indirect cost will be posted i need to check the general posting setup for this posting group.
The next we will do is to register a purchase invoice for our item and post that.
The general ledger entries
As a result of posting the purchase invoice we ended up with these general ledger entries and i have also shown the net change on our trail balance.
How to handle the actual invoices we receive for indirect cost?
One option we have now can be to post the invoices we receive for costs that we have defined as indirect cost to the balance account (20250) we used to offset our calculated indirect cost. Doing so we can easily control if the indirect cost % defined on our item card is sufficient to cover the actual cost. And we can use that result to evaluate if we need to increase or decrease the percentage for indirect cost.
What happens when we sell our item?
After posting a sales invoice for the qty. of 1 of our items for a sales price of 15. Our trail balance will look like shown below.