Costing Pricing Units of Measure
The Costing & Pricing subsystem provides you with the ability to enter and update all costs and prices for all items by unit of measure, including pricing levels and quantity breaks. This subsystem also allows you to set up commission percentages by pricing and quantity break levels.
When entering or changing costs and prices, the system provides ‘suggested’ programs where these are entered. Suggested programs allow you to enter cost or price changes into a file that does not affect your transactions or audit trails. The purpose of these suggested files is to enter cost and price changes before they are to take effect. This gives you the opportunity to manipulate and review the suggested costs and prices prior to running the update. The update program allows you to enter a cutoff date to update through. Any suggested cost/price changes with an effective date up through that ‘user entered’ cutoff date are updated. When updated, ‘suggested’ costs and prices will become the actual costs and prices used in transactions and audit trails.
The Inventory Control system contains a ‘costing flag’ which determines which cost the system should use for calculating gross margin. This cost is called the standard cost. The possible costs that may be used as the standard cost are as follows:
Costs are initially entered through the quick item entry in the Item F/M when initially setting up items. Once the costs are entered, the average, last, LIFO and FIFO costs are maintained by the system. The only cost which may be maintained by the user is the manual cost. The manual cost is maintained through these Suggested Cost/Price programs. When entering a suggested manual cost, you may enter a new amount for suggested manual cost, a percentage (%) change from the current manual cost or enter a basis (list price only) and multiplier for the suggested manual cost.
When setting up manual cost, there is only one allowable costing unit of measure and therefore only one manual cost per item.
The possible prices that may be set up through the costing/pricing subsystem are as follows:
List Price - this is usually the manufacturer’s suggested retail or list price. List price may be used when selling an item but is generally used as the basis for setting up other prices for an item. For example, when setting up price levels, each level price may be set up as List Price times a number (multiplier). If the list price is $10.00 and the level prices are 1-$9.75, 2-$9.50, 3-$9.25, and 4-$9.00 the basis is $10.00 (list price) and the multipliers are 1-.975, 2-.950, 3-.925, and 4-.900. When entering a suggested list price it may be entered as a dollar amount or as a percent (%) change of the current list price.
Standard Price - this is a standard price as determined by you the user. Suggested standard price may be entered as a dollar amount, a percent (%) change of the current standard price or may be entered using a basis (list price or manual cost) and multiplier.
Level Price - there may be up to 6 (six) level prices per item. The level price used when the item is sold is based on the price level assigned to the customer. For example, if a customer is assigned price level 4, the level 4 price will be used when selling an item to that customer. Suggested level prices may be entered as a dollar amount, a percent (%) change of the current level price or may be entered using a basis (list price, manual cost, standard price, or previous price level) and multiplier.
When setting up level prices, the prices must be set up in a descending order if the require descending level prices flag is set to Y in the IC Static Control Record. A descending order indicates that the price calculated for price level 1 must be greater than level 2 and the price calculated for price level 2 must be greater than price level 3, etc.
Quantity Break Price - there may be up to 6 (six) quantity break prices per item. The quantity break price allows you to enter a minimum quantity of the item to sell along with the price per UM for that item. For example, if three quantity break levels are set up as follows: 1) 10 ea. for $2.75 ea.; 2) 15 ea. for $2.50 ea.; 3) 20 ea. for $2.25 ea.) and the quantity sold is 12, the default price would be $2.75. Suggested quantity break prices may be entered as a dollar amount, a percent (%) change of the current quantity break price or may be entered using a basis (list price, manual cost, standard price or previous quantity break) and multiplier.
When setting up quantity break prices, the prices must be set up in a descending order if the require descending level prices flag is set to Y in the IC Static Control Record. A descending order indicates that the price calculated for quantity break 1 must be greater than quantity break 2 and the price calculated for quantity break 2 must be greater than quantity break 3, etc.
Using Basis and Multiplier when you set up pricing
When entering suggested prices, there may be a current list price and a suggested list price. If list is then used as the basis the system must determine whether the current list or suggested list is used. The rules are as follows:
If there is a suggested price entered for the basis selected, that suggested price is used.
If no suggested price exists for the basis selected, the current price is used.
For example, when setting up prices for item I100 and entering the level 1 price, if basis selected is list price but no suggested list price exists, the current list price is used as the basis as follows:
Current list price: $10.00
Level 1: basis is current list price, multiplier is .9500; 10.00 X .9500 = $9.50
In another example, when setting up prices for item I100 and entering the level 1 price, if basis selected is list price and a suggested list price exists, the suggested list price is used as the basis as follows:
Current list price: $10.00
Suggested list price: $11.00
Level 1: basis is suggested list price, multiplier is .9500; 11.00 X .9500 = $10.45
An example of how these levels could be used is for trade discounts. The levels could be set up as follows:
Level 1: 5% discount off list price (basis: list; multiplier: .9500)
Level 2: 5% discount off the level 1 price (basis: level 1; multiplier: .9500)
Level 3: 10% discount off the level 2 price (basis: level 2; multiplier: .9000)
Since each item can have more than one valid unit of measure (UM) for pricing, each item can have each of the prices listed above set up for each pricing UM. Therefore the unit of measure is part of each pricing record. When entering or updating suggested prices, the user has the choice of entering or updating all pricing UM records, default pricing UM records, or non-defaulting pricing UM records for an item.
‘Use Default Prices’ Flag
You may not want to duplicate pricing records for each unit of measure if all prices for all units of measure calculate to the same price per the default price unit of measure. For example, if there are 10 each per box and the price per each is $1.00 and the price per box is $10.00 then you can simply set up the each price allow the system to always calculate the box price for when the item is sold per box.
In the Item File there is a flag, Use Default Prices, that allows the user to determine for each item whether to use calculated prices from default pricing and quantity break UMs for other pricing and quantity break UMs that do not have prices set up. Using the preceding example, the use default prices flag is set to Y:
Item I100 - default price UM is each; price/each is $1.00. Box and case are valid pricing UMs however no pricing has been entered for box or case. There are 10 each in a box and 100 each in a case.
Five boxes of I100 are sold and the system is looking for the default price. The system will calculate the box price based on the each price. In this example, the box price would be calculated at $10.00/box (1.00 X 10 each/per box).
In addition to setting up prices for specific items, the user may set up contract prices. Contract prices are prices that are set up by customer, customer class or all customers by item, item class, vendor or all items and then by specific or all units of measure. Because there may be multiple contract prices for the same for example, customer/item combination, a hierarchy is used to determine which contract price to use. This hierarchy is user defined and is set up through a hierarchy F/M found on the Contract Pricing Menu
Contract prices may be set for standard price and up to 6 (six) price levels and 6 (six) quantity break levels. Contract pricing is set up through the Contract Pricing Subsystem found in Sales Orders. Please refer to the FACTS Sales Orders Manual for more information on contract pricing.
How the system determines the correct price to use - The ‘price search’
Once all of the applicable prices listed above are set up by the user, the user then sets a Sales Order control flag that determines the hierarchy of which prices to use when selling an item through the sales order entry programs. The choices for the hierarchy are as follows:
1. Standard Price
2. Level Price
3. Quantity Break Price
4. Contract Price (see "Contract Prices" in this section)
5. Lowest
During Sales Order entry programs, when at the price field, the system runs a ‘price search’ program to generate the default price. This default price is based on the price hierarchy set by the user. For example, the user could set the hierarchy to "standard, level, contract, quantity break, lowest". This tells the system that if there is a standard price available for the item, the standard price should be the default for that item. If there is no standard price available, the system should then check for a level price. If no level price exists for the item the system should then check for a contract price. If no contract price exists for the item the system should then check for a quantity break price. If no quantity break price exists the system should look for the lowest price.
The price search program looks for prices in the order of the hierarchy until it finds a valid price. If lowest is reached in the hierarchy during the price find, the system looks at all prices and determines the lowest and presents that lowest price as the default.
While performing the price search, the system also checks the use default prices flag set in the Item F/M. This flag determines whether the default pricing UM should be used to calculate a price for another UM if no prices for that other UM exist. (See section above - ‘Use Default Prices’ flag). If the hierarchy is set to "standard, level, contract, quantity break, lowest", when looking for each price, the system will first look for a price in the pricing unit of measure in which the item is being sold. If there is no price for the pricing UM for that item, the system then check the use default prices flag to determine if the price should be calculated for the pricing UM (being sold in) based on the default pricing UM.