COGS functionality within Amicus POS!

Hello all

I was asked recently about the COGS (Cost of Goods Sold) functionality within Amicus, our flagship point of sale system, so I’ve drafted up the following basic descriptions.

For those of you who are completely unaware as to the nature of COGS, it is basically a mechanism whereby the client can determine what the cost of an item is at sale time. When Amicus POS makes a sale, it records the cost of the item against the sale record so that when a client runs reports, Amicus POS can display costs, profit margins etc. on their sales data that is calculated directly to their local interpretations of cost.

COGS can be further broken up into a number of different approaches as follows;

• Fixed Cost – This is the simplest method. The system will determine that the cost of PRODUCT_A always be $X.XX until the system is told otherwise.
• Last Cost – Determines the cost to be the last given cost of PRODUCT_A from stocktake, stock receipt records etc. This is closely related to worth, as it is assumed that the worth of a product is based on its replacement cost. An example of this is where 10 units of PRODUCT_A are purchased from the supplier at the rate of $1ea. Then a further 10 units of PRODUCT_A are purchased at the rate of $2ea. The combined worth (replacement cost) will be determined as $40. Each item will be recorded as costing $2.
• FIFO – First In First Out. This is basically a queue system. Determines that the cost of PRODUCT_A to be the same as the cost of the oldest individual unit at the time it was purchased from the supplier. An example of this is where 10 units of PRODUCT_A are purchased from the supplier at the rate of $1ea. Then a further 10 units are purchased at the rate of $2ea. So for the first 10 units that are sold, their cost will be recorded as $1ea, and then the next 10 will be recorded as $2ea.
• LIFO – Last In First Out. This is basically a stack system. Determines that the cost of PRODUCT_A to be the same as the cost of the newest individual unit at the time it was purchased from the supplier. An example of this is where 10 units of PRODUCT_A are purchased from the supplier at the rate of $1ea. Then a further 10 units are purchased at the rate of $2ea. So for the first 10 units that are sold, their cost will be recorded as $2ea, and then the remaining 10 will be recorded as $1ea.
• Average Cost – This is the historical average cost of the product. An example of this is where 10 units of PRODUCT_A are purchased from the supplier at the rate of $1ea. Then a further 10 units are purchased at the rate of $2ea. So our current stock level for PRODUCT_A is 20, and they cost a combined $30 leaving us with an average cost of $1.50 per unit.

Choosing an approach depends on the nature of the industry that will be using Amicus POS as well as other local factors such as tax laws etc. There are a number of pros and cons to each approach, but here is a general guide;

• Fixed Cost – This is the best choice for smaller scale operations such as general retail. Simple to use and maintain. Uses the least amount of processing power.
• Last Cost – This is the best choice when the single most recent cost should be used. Particularly useful when an item may spoil, or replacement cost needs to be considered. Well suited to Fuel or Hospitality industries. Uses a small amount of processing power.
• FIFO – This is the best choice when the stock on hand value should reflect the most recently purchased items. Uses a significant amount of processing power.
• LIFO – This is the best choice when the stock on hand value should reflect the least recently purchased items. Uses a significant amount of processing power.
• Average Cost – This is the best choice when the cost of an item needs to be spread over the entire current stock. Uses a significant amount of processing power.