Cost calculation in NetSuite depends on multiple factors, including inventory valuation methods, landed costs, work-in-process (WIP), and cost categories. Below is a breakdown of how NetSuite calculates costs in different scenarios.
1. Costing Methods in NetSuite
NetSuite provides different inventory costing methods, and the method chosen affects cost calculation.
a) Average Costing
- The system calculates the cost per unit as the weighted average of all inventory purchases.
- Formula: Average Cost per Unit=Total Cost of InventoryTotal Units in Inventorytext{Average Cost per Unit} = frac{text{Total Cost of Inventory}}{text{Total Units in Inventory}}Average Cost per Unit=Total Units in InventoryTotal Cost of Inventory
- Each time inventory is received, the cost is recalculated.
b) FIFO (First In, First Out) Costing
- The cost of goods sold (COGS) is calculated using the cost of the oldest inventory first.
- Example:
- Purchase 100 units @ $10 each
- Purchase 200 units @ $12 each
- Sell 150 units → 100 units @ $10 + 50 units @ $12
c) LIFO (Last In, First Out) Costing
- The newest inventory cost is used first when calculating COGS.
- Example:
- Purchase 100 units @ $10 each
- Purchase 200 units @ $12 each
- Sell 150 units → 150 units @ $12
d) Standard Costing
- The cost is pre-determined and set manually.
- Any variance between standard and actual cost is recorded in a variance account.
e) Lot Numbered & Serialized Costing
- Each lot or serial number has its own specific cost.
2. Cost Components in NetSuite
Cost calculation involves multiple components:
a) Purchase Cost
- Direct cost of acquiring the item.
- Includes purchase price, taxes, and shipping costs.
b) Landed Costs
- Additional costs incurred to bring inventory to the warehouse.
- Includes freight, duties, handling, and insurance.
c) Work-in-Process (WIP) Costs
- For manufacturing businesses, costs include:
- Raw material costs
- Labor costs
- Overhead costs
- Calculated dynamically as production progresses.
d) Assembly & Bill of Materials (BOM) Costs
- For items manufactured in-house, NetSuite calculates:
- The cost of each component
- Labor and overhead costs
- Total cost of finished goods = Sum of component costs