Why it's Important to Choose the Right NetSuite Costing Method

Posted by John Martinez, Practice Director on May 20, 2019 12:04:08 PM
John Martinez, Practice Director

When choosing a costing method in NetSuite, each has benefits and some "gotcha’s" that can surprise you if you are not fully informed.  Some of these show up due to multiple locations and related to specific activities such as: transfer orders, cost roll-ups, inventory adjustments, and supply methods. 

Here are some examples.

Average Cost
Average cost for an item typically gets established in a location when a receipt occurs from a purchase order or an inventory adjustment into a location with a defined cost.

Gotcha’s include:

    • If you have zero on hand inventory the average cost is actually $0 and if you performed a stand-alone RMA, the item will be received at $0 - even if there was a previous average cost.In this situation, setting the default return cost can help. 

    • There is no easy way to revalue inventory in NetSuite for Average cost items.  This becomes exceptionally difficult when dealing with serialized inventory. 

LIFO, FIFO, Specific, and Lot Numbered Costing
These forms of costing allow you to establish specific cost based on actual units, receipt, and lot assignment.

Gotcha’s include:

    • When using these methods be aware that certain operational reports will not be able to use that actual costs defined at time of shipment.  NetSuite will use calculated average cost instead.  Some of these reports include:
      • Sales order reports that include cost or margin
      • Forecast and Pipeline reports
      • Actual margins on order will be based on average cost

    • Be aware that there are no easy ways to see cost tiers for LIFO and FIFO. 

Standard Cost
This method has some unique advantages and often used in manufacturing.  One specific advantage is the ability to revalue inventory in stock. 

Gotcha’s include:

      • When performing a transfer order from one location to another location, you must enter in a transfer price on each line. Otherwise, you will create unintentional adjustments to your Inventory and PPV accounts that have to be cleaned up and impact your ability to see the value of inventory in transit. 
      • When valuing assembly items, the Supply Type entry will determine how the standard cost will be derived, depending upon whether it is Build, Purchase, or Transfer.

Here are just a few things to be aware of and be prepared for when setting up your items. To learn more, check out our webinar: Pitfalls of NetSuite Costing Methods.

Costing Methods Webinar

Watch the Costing Webinar Now >>

Tags: NetSuite How To's

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