Commodity Costing and Quality Control

The cost factors that are used to determine the cost of a commodity item during a particular period are fixed amounts. However, the values for which they have been defined may vary with each unit or lot of a commodity. For example, a cost factor might be established so that every pound of a particular commodity property is costed at $1. While the $1 cost factor remains fixed, the quantity of the property that is recorded with each commodity lot will vary, resulting in differing costs from lot to lot.

If you wish to use a commodity's recorded properties to calculate costs, you can link the commodity cost components that are used to determine the cost of commodity items to quality control tests.

Quality Control Tests

The quality control tests that are performed on items are set up in the system as data collection data elements. Data collection data elements represent different pieces of information that can be assigned to master records, such as items. You can assign data collection data elements to an item record as a quality test, along with the target values that represent a passing test result.

Whenever a new lot for an item with defined quality tests is received into the inventory, a pending quality control activity is created for that lot. A quality control activity consists of the quality control tests that have been assigned to the relevant item record. The user can record results for each item quality test, then complete the activity. The results of quality testing are maintained in the program.

Commodity Cost Components

The cost of a commodity item is calculated from the cost components that are associated with it. Cost components can be set up to represent different properties or characteristics of a commodity item.

A series of commodity cost components can be assigned to a commodity class. & Commodity classes are then assigned to commodity items that appear on production bills of materials and purchase orders.

Each commodity cost component has an associated cost factor. When a commodity class is assigned to an item, the cost factors that have been defined for that class's commodity cost components are used to calculate the per unit cost of the item. For example, we have a commodity class that has three cost components, all three of which have a cost factor of $1. If we assign the commodity class to a purchase line and instruct the system to calculate the per unit cost of the item on that line, the result will be a value of $3.

Quality Test Application

It is possible to associate a commodity cost component to a quality control test. If this link has been established, the result of the relevant quality control test is applied to the cost component's defined cost factor when the program calculates a cost for the item. This leads to variations in the cost of a commodity item based on the properties of the specific item lot that is entered on the transaction line.

Consider our previous scenario, where we had a commodity class with three cost components, each with a cost factor of $1. Suppose we associate one of these cost components to a quality control test and indicate that the test result should be applied as a percentage to the cost component's related cost factor. When we assign the commodity class to a purchase line and instruct the system to calculate the per unit cost of the item, the related quality test result that has been recorded for the item lot on that purchase line is applied to the commodity cost component's cost factor of $1. If the test result was 10%, the system would calculate a cost factor of $0.10. This is added to the cost factors of the other cost components, resulting in a per unit value of $2.10.