18.5 Examples

The example inventory screens demonstrate the entry of inventory products using the three different types of price structures: none, customer, and quantity.

Example 1

The following example shows the entry of a product with a single price (a price structure of none). Two sample inventory control screens are shown. The first screen demonstrates the entries that are made when an inventory item is initially entered in the Inventory Control System. The second screen shows the changes that take place after activity involving the inventory item has taken place.

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This is an inventory item for a company that sells building supplies as well as other types of products. It sells 50 different kinds of nails so it groups all its nails into a category called nails. By doing this, the company is able to run reports that just list the inventory items in the nails category. This feature is especially useful to this company when it comes to reordering inventory. Nails are a very fast moving item, and many of the nails must be reordered once a week. On the other hand, most of the other products only have to be reordered once a month. The company can run the Reorder Report for the items in the nails category once a week, and run the full Reorder Report once a month.

The cost of goods sold, gl controlling and sales accounts are all general ledger accounts.

The unit cost of these nails is 30. The company would like to make a 40% margin. The price was calculated by dividing the cost by one minus the margin. In this case,

Price = .30 / (1 - .40).

The Price field can be left blank. In this case Reprice Inventory Using Margins process must be run to calculate the price.

To keep from running out of n16d nails, the company needs to put in an order for another 20 pounds of nails when the supply gets down to 10 pounds.

The rest of the fields: Unit Cost, Qty on Hand, and Value, are blank because they are display only fields and are filled in by the system. The Outstanding Orders and Qty Committed are also display only fields and they are updated by the Order Entry System.

The following events take place:

In the first week 20 pounds of nails are purchased at 30 a pound. During the first week 10 pounds of the nails are sold.

At the beginning of the second week 20 pounds of nails are purchased at 40 a pound.

The screen below represents the n16d nails inventory after the Reprice Inventory Using Margins process is run in the middle of the second week.

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The following fields have changed:

Value

The $11.00 in this field represents 10 pounds of remaining nails at 30 a pound plus 20 pounds of new nails at 40 a pound.

Qty on Hand

This is the number of pounds of nails currently in stock. It includes the 10 pounds left over from the first week and the 20 pounds purchased in the second week.

Unit Cost

This is an average unit cost figure. It represents the average of 10 pounds of nails at 30 a pound and 20 pounds of nails at 40 a pound.

Price

The price was recalculated by the process Reprice Inventory Using Margins. The price is higher because it is based on the average unit cost which has increased.

Price = Unit Cost x 100 / (100 - Margin)

.61 = .37 x 100 / (100 - 40)

Example 2

In this example, the same product, n16dc, is entered. This time the price depends on the type of customer that is purchasing the nails. The initial cost of the nails is 30 a pound. The first screen is shown below:

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All the fields are filled in as in the first example except the Pricing Structure field is customer, and the Margin and Price fields are left blank. The information for the latter two fields is entered on the next screen: the price structure screen. Pressing the STORE <F5> button makes the pricing screen appear. The data entered on the pricing screen follows:

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Notice that a different margin and price are entered for each class of customer. As with a product with a single price, the price can either be entered directly on the screen or the process Reprice Inventory Using Margins can be run to calculate the price using the margin and the unit cost. The Lower Quantity field is not used with the customer type price structure.

The following events take place.

In the first week 20 pounds of nails are purchased at 30 a pound. During the first week, 5 pounds are sold to a retail customer for 50 a pound. Ten pounds are sold to a wholesale customer for 43 a pound.

At the beginning of the second week 20 pounds of nails are purchased at 40 a pound.

The following screen represents the n16d nails inventory after the Reprice Inventory Using Margins process is run in the middle of the second week.

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The following fields have changed:

Value

The $9.50 in this field represents the 5 pounds of the remaining nails at 30 a pound and the 20 pounds of the new nails at 40 a pound.

Qty on Hand

The current stock of nails includes the 5 pounds of nails left over from the first week and 20 pounds of nails purchased in the second week.

Unit Cost

This is an average unit cost figure. It represents the average of 5 pounds purchased at 30 and 20 pounds purchased at 40 a pound.

Price

The prices were recalculated by the process Reprice Inventory Using Margins. The reprice process uses the current unit cost (average cost) and the percentage entered in the Margin field to calculate the price. The prices have increased because the unit cost has increased.

Price = Unit Cost x 100 / (100 - Margin)

.63 = .38 x 100 / (100 - 40)

.54 = .38 x 100 / (100 - 30)

Example 3

This example shows how to enter a product that is priced according to the quantity purchased. The second part of this example demonstrates the affect of the Order Entry System on the product record.

The top part of the screen is filled in just like in the previous example except quantity is entered into the Pricing Structure field. The amounts in the Reorder Point field and the Order Quantity field are 100 and 200 respectively.

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As when entering a product with a customer pricing structure, after you press the STORE <F5> button, the pricing screen is displayed.

For this example, we are assuming a unit cost of 30 a pound for the n16dc nails. Customers who purchase 100 or more pounds of nails at one time get a 3% price break.

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Price Class

This field is not used with the quantity type pricing structure.

Lower Quantity

The lowest quantity of the product that can be purchased at the price in the Price field is entered here. An order for less than 100 pounds of nails has a selling price of 50 a pound. The smallest order that can take advantage of the 48 a pound price is 100 pounds of nails.

Margin

We want a 40% margin on orders for less than 100 pounds. The margin for orders for 100 pounds or more is 37%.

Price

The price can be either entered directly, or it can be calculated by running the Reprice Inventory Using Margins process. The reprice process uses the current unit cost and the percentage entered in the Margin field to calculate the price. We have calculated the prices using the formula

price = unit cost / (1 - margin)

.50 = .30 / (1 - .40)

.48 = .30 / (1 - .37)

The following events demonstrate the effect the Order Entry System has on the Qty on Hand, Outstanding Orders, Qty Committed, and Value fields.

At the beginning of the first week 200 pounds of nails are purchased at 30 a pound.

After the purchase is made, the process Reprice Inventory Using Margins is run to calculate the unit cost.

Later on in the week, two orders are placed. The first order is for 100 pounds of nails, and the second order is for 50 pounds of nails.

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The following fields have changed.

Unit Cost

The amount in the Unit Cost field is the result of running the Reprice Inventory Using Margins process which calculated the unit cost by dividing the Value by the Qty on Hand:

Unit Cost = Value / Qty on Hand

.30 = 60.00 / 200

Outstanding Orders

This field shows that 150 pounds of nails have been ordered.

At the beginning of the second week a packing slip is created for the first order for 100 pounds of nails.

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The following fields have changed.

Qty Committed

Now that a packing slip has been created for the first order, 100 pounds of nails are committed.

Outstanding Orders

The first order is no longer outstanding, so the amount in this field is decreased by 100, which leaves 50 pounds outstanding from the second order.

Note that neither the Qty on Hand field nor the Value field has been affected yet. In other words the 200 pounds of nails are still in inventory.

At the end of the second week, the order for 100 pounds of nails is shipped and billed, and a packing slip is created for the 50 pound order.

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The amounts have changed in the following fields.

Qty on Hand

One hundred pounds of nails are removed from inventory when the first order is shipped and billed.

Outstanding Orders

There are no more orders outstanding now that a packing slip has been created for the second order.

Qty Committed

Fifty pounds of nails were committed when the packing slip was created for the second order. The 100 pounds that were billed are no longer committed.

Value

This field has been decreased by the cost of the first order, the quantity times the unit cost (100 x 30).