Cost of Sales in COSTAR
This help file explains how the Cost of Sales (COS) is calculated in COSTAR and attempts to explain how this may be different to other systems.
In a nutshell, the COS General Ledger code is updated when inventory is sold and it is affected by the cost the inventory was purchased for. To explain this in more detail this we’ll have a look at an example of purchasing and selling inventory.
Example to Illustrate COS
For this example let’s say we purchased the following items:
2 x ABC123 are purchased for $60.00 on 9 December
2 x ABC123 are purchased for $58.00 on 12 December
3 x ABC123 are purchased for $65.00 on 16 December
Costar uses ‘First In First Out’ (FIFO) costing. Therefore, the above purchases create the following ‘bucket’ for item ABC123.
On 17 December 3 units of item ABC123 are sold. Because of the FIFO costing used in Costar the 2 units purchased for $60.00 are considered to be sold first and then 1 of the units purchased for $58.00. The COS General Ledger code is updated by $178.00 (being 2 x 60.00 + 1 x 58.00).
Credit Notes
When a Credit Note is processed and inventory is brought back into the system the COS General Ledger code is credited by the Supplier Cost displayed on the Credit Note.
Selling into Negative Quantities
The situation can arise when inventory is sold out before you receipt it in. In this situation because the computer has a Quantity On Hand (QOH) of zero the ‘Supplier Cost’ displayed on the invoice is used as the cost that updates COS.
If you have a QOH of 4 of a particular item and you sell 5 then the bucket cost is used to update COS for the 4 units and the Supplier Cost displayed on the invoice is used to update COS for the 1 unit that took the QOH into negative.
Note: The ability to sell into negative can be password protected. This is done from Settings > Passwords and Events.
Serialised Items
Items can be serialised which means the system doesn’t use FIFO costing for these items. As each item is assigned a unique serial number when purchased (or traded in) you can identify exactly which item is sold by selecting the appropriate serial number. For example, second hand items are usually set up as serialised. In this case, when a serialised item is sold the COS is updated by the cost associated with that particular serial number.
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