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Author's profile photo Shula Ben Dosa

Determining The Item Cost Calculation Method in Perpetual Inventory System

SAP Business One supports two methods:

  • Item cost is calculated per company – the checkbox Manage Item Cost per Warehouse is not selected
  • Item cost is calculated per warehouse – the checkbox Manage Item Cost per Warehouse is selected

(The checkbox is available in Administration > System Initialization > Company Details > Basic Initialization tab)

When item cost is managed per company, the Item cost calculation is based on transactions from all warehouses and the cost is equal in all warehouses.

When item cost is managed per warehouse, the Item cost is calculated for each warehouse separately, based on transactions posted to the given warehouse .

NOTE: This rule is true only when item valuation method is Moving Average or FIFO or Standard.

When item is managed as a batch item and  the item valuation method is by Serial/Batch, the serial/batch cost is calculated based on all receipts from all warehouses to same batch.

Before determining the cost management method you should answer the below questions:

  • Do you plan to assign different inventory account to each warehouse  in order to view it in various reports? (e.g.: balance  sheet, inventory audit report)
  • Do you need , due to any business / legal requirement,  to report the inventory value for each warehouse separately?
  • Do you need the inventory audit report to be grouped by warehouse? (details in SAP Note 1279742)
  • Do you need to generate material revaluation to each warehouse separately? (Details in SAP Note 1684651)

If the answer to all/part of the questions is ‘Yes’ then it is strongly recommended to manage the item cost by warehouse.

NOTE: Once inventory posting was generated in the company database, the settings made in “Use Perpetual Inventory” and “Manage Item Cost per Warehouse” are irreversible.

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