Commodity costing and quality control

The cost factors used to determine the cost of a commodity item during a particular period are fixed amounts. However, the values for which they are 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 costs $1. While the $1 cost factor remains fixed, the quantity of the property recorded with each commodity lot varies, resulting in different costs from lot to lot.

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

Quality control tests

The quality control tests performed on items are set up in the system as data collection data elements. Data collection data elements represent different pieces of information that you can assign 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 inventory, a pending quality control activity is created for that lot. A quality control activity consists of the quality control tests assigned to the relevant item record. You can record results for each item quality test and then complete the activity. The results of quality testing are retained in the program.

Commodity cost components

The cost of a commodity item is calculated from the cost components associated with it. You can set up cost components 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 defined for that class's commodity cost components are used to calculate the per-unit cost of the item. For example, a commodity class has three cost components, all with a cost factor of $1. If you 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 is a value of $3.

Quality test application

You can associate a commodity cost component with a quality control test. If this link is 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 creates variations in the cost of a commodity item based on the properties of the specific item lot entered on the transaction line.

Consider the previous scenario with a commodity class with three cost components, each with a cost factor of $1. Suppose one of these cost components is associated with a quality control test and the test result is applied as a percentage to the cost component's related cost factor. When you 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 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 is 10%, the system calculates 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.