Price Schedules | Inventory Control Overview
There are several things to consider when looking at inventory costs. The first is, what is the normal price you expect to pay for the item versus what have you actually paid for the items. These two are similar but quite different. In very simple systems, you enter one cost price and that's it. If only it were so easy.
The price you expect to pay is stored with the main inventory record. In addition to the raw inventory cost, you can also add frieght, duty or other charges such as insurance. These numbers are added together to give you your landed cost at your door step. When pricing goods for resale, it's important to know the landed costs with all the hidden charges included.
To add to complexity, if you normally buy the item(s) from a different country, you can enter the cost in that foreign currency such as German Marks or Japanese Yen. In the system setup, you can change the currency conversion factors as often as needed, even daily. Then, when you view an inventory item you'll see the foreign cost you need to pay and then the real cost in Dollars.
If you can buy the same item from different suppliers, you can enter the Alternate Supplier information including the cost from each. Before you purchase from a different supplier, you'll be able to view their cost that was charged the last time you purchased from them.
On your actual costs, once you land the inventory at your doorstep and add the items into inventory, the system will create a record showing the actual cost in Dollars, not the foreign currency. This is the cost that will be used when costing invoices as they are entered into the system. The inventory is removed on a first in, first out basis, which is the most accurate.
When you print an inventory report, you'll be able to view your actual cost based on a wieghted average of what is actually left in stock. So even though the system is costing on a first in, first out basis, the inventory remaining on hand is properly calculated for report and inventory valuation purposes.
The expection to costing on a first in, first out method is when dealing with serial numbers. Each serial number is stored with it's own unique cost and that is what is used on the invoices.
Markup Percentage |
Industrial and Wholesale types of companies generally like to mark their inventory up from cost, such as cost plus 30% With Windward System Five you can markup from either your cost price or your landed cost. |
Margin Percentage
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Retail types of businesses generally prefer to use the margin method, where the margin is based on the retail price instead of the cost price. This margin can be based on either the cost price or the actual landed price.
For example, if you have an item that cost you $100, you would need to sell it for $150 to achieve a 33% margin. This is based on the profit of $50 divided by the Retail price of $150. Note that if you were dealing with the markup method, the above would yield a 50% markup. |
Fixed Price
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If you produce a catalog and need to sell the items at a fixed price during the year, regardless of minor fluctuations in your cost price, you could price your inventory as fixed. The system would then lock that price in and sell it for that, regardless of the actual cost price. |
Price Protection
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If you are using a percentage markup or margin, there are several ways to calculate the retail price. You can base it on one of the following methods.
Actual Cost Method
The retail price is calculated by using the percentage markup or margin from the price actually paid for the item. As your cost price goes up and down, so will your retail price, therefore your margins will always be protected.
Standard Cost Method
The Standard Price is the price you have listed on the inventory record as what you expect to have to pay for the item from your supplier. It is not the actual price that you paid, although it could be the same.
This method is often used for those printing price catalogs for their customers and need to maintain a steady retail price. You actual costs may fluctuate up and down based on special deals from your suppliers, changes in the currency, or other factors, but the retail price will be locked in.
The system will still cost your inventory on a first in, first out basis, so the cost of sales will always be accurate. And if you actual costs change enough, you can manually change your standard retail price.
Highest Cost Method
This is a combination of the above two methods. The system will base the retail price on the higher of the standard cost price or the actual cost price. This means if you get a special deal from your supplier, you will not have to pass the savings onto your customer, but if your price increases unexpectantly, then the retail price will automatically increase to protect your bottom line.
Average Cost Method
This method is sort of a happy medium. The system will base the retail price on the average cost that you actually paid for the items in stock. |
Price Schedules
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Windward System Five will allow you to enter a list price and up to 12 separate price schedules. You can decide which customers get which price by assigning them a price schedule.
For example, new customers and walk-in traffic may pay list price, regular customers may get a small discount and be on price schedule 1, good high volume customers may get a better discount at price level 2, and relatives and staff may get price level 3. Twelve price schedules are probably more than you'll ever need.
Remember, a price schedule is just a number. You can decide for each inventory item what kind of discount you want to give for each price schedule. Normally, you will set a default for a sub category to make your data input easy, but you then have the option of changing the schedule on the inventory record.
You can also create exceptions to the rule, such as a customer may be on price level one for all purchases, except for paper products, which are sold at price schedule two price. This is definable for each customer. |
Volume Discounts
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Another method of pricing is based on the volume purchased. For example, if you buy one envelope, it's one price, but if you buy a bundle, you'll get a better price. And if you buy a whole box full, the price is even better. These volume discounts can be programmed directly onto the inventory record so the pricing happens automatically during point of sale. |
Sale Prices
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You enter enter a Sale Start Date and a Sale End date. Between these dates, the system will automatically charge the Sale Prices (Right Columns) instead of the Standard Prices (Left Column). This will allow you to enter your sale prices well in advance of the sale date and have them activate automatically on the give date. This saves coming in early or staying late to price the system just before the start or end of a sale. |
Contract Prices
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If you need to set contract prices for certain items between two dates, the Windward System is for you. Some of our customers bid for Government and School contracts in which they guarantee to sell certain items for a set price, regardless of the number purchased each time. During the year, they may purchase 5000 pencils, but one school may come in and buy just one pencil and will receive the same price. |
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