Lesson 13-- Cost Items (Inventory Items)

Cost items are individual material, labor, equipment or subcontractor costs that you use frequently. They can be items you buy or sell, components in your products or services, or supplies that you use frequently in your general business operations.

Cost items are a central part of the Goldenseal construction estimating software and inventory management software. They will do the following for you:

Provide simple unit costs that you can include in estimates.
Calculate the selling price of items or services that you provide.
Speed up data entry for items that you frequently buy and sell.
Identify specific expenses, so you can track expenses in more detail than is possible with cost categories.
Track inventory quantities.

A good set of cost items makes it much easier to keep your business organized and profitable. They are essential if you provide estimates, or if you see frequent changes in the cost of supplies or resale goods.

This Lesson explains how to use Cost items.

NOTE: Cost items are frequently combined into assemblies-- especially for construction companies, for service businesses, and when purchased items are not resold 'as is'.

When to Use Cost Items

Create a cost item for each type of material that you use frequently-- whether you resell it, build it into projects, use it as a component for manufacturing, or consume it as part of your overhead costs.

HINT-- You can use cost items even if you don't specifically manage inventory.

Also create cost items for equipment and employee hours, and for subcontracted labor or services that you use frequently.

For example, create a cost item for any of the following:

Materials you purchase for use in projects.
Goods that you purchase for resale.
Office supplies you use frequently.
Hours of employee labor for each class of employee.
Hours of equipment time for each equipment type you use.
Hours of subcontractor time or subcontracted 'piece work'.

Creating a Cost Item

To create a new cost item, follow these steps:

Choose Cost Items from the Costs menu.
Click the New button.
Enter a short name to use in menus, and a more complete name for use in lists and reports.
Enter the type of cost this is. Most Cost Items are a material cost, but they can also be equipment, labor, subcontractor or other costs.
If you want to use an optional cost item number, enter it into the Item Code field. You can use up to four decimal digits.
Use the clairvoyant field to enter the unit size for this item.
Choose a category system, category and optional subcategory.
Enter the markup, discount, and pricing details for this item.
Click the Vendor Prices button to enter prices from specific vendors.
Click the Inventory Setup button to enter pricing, inventory and estimating details.
Click the Contract Setup button to enter contract details.

Price Calculations

When you create cost items, you set up the way that the net cost of the item is calculated. Goldenseal automatically calculates five different prices for each cost item:

Resale-- For items sold through a Sale transaction.
Reduced-- For items sold through a Sale transaction, when the item has been marked as 'on sale'.
Project-- For items used directly in a project estimate.
Component-- For items included as a component in an Assembly.
Inventory-- For the value of the item while it's in inventory.

The net price for each cost item is calculated from its purchase price and a Markup System (which adds 'markup' to the purchase price).

Purchase Price

Goldenseal gives you several options for calculating the purchase price of a cost item. Enter any of the following options into the Pricing Method field:

Manual-- For manual pricing, you simply type a price into the Purchase Price field. It's up to you to keep the purchase price up-to-date. HINT: It's a good idea to type in a 'starter' price before you change to one of the other pricing methods. Goldenseal will use the starter price until you enter purchases for this item.
Latest Price-- Goldenseal uses the most recent expense transaction that includes this item in an Item breakdown. Prices are updated whenever you enter a new purchase that includes this item.
Latest Main Supplier-- The same as Latest Price, but Goldenseal only looks at prices from the Main Supplier that you entered.
Highest Price-- Goldenseal uses the highest price for this item in purchases during the entered time period. Prices are updated whenever you enter a new purchase that includes this item.
Highest Main Supplier-- The same as Highest Price, but Goldenseal only looks at prices from the Main Supplier that you entered.
Average Price-- Goldenseal uses the average price for this item in purchases during the entered time period. Prices are updated whenever you enter a new purchase that includes this item.
Average Main Supplier-- The same as Average Price, but Goldenseal only looks at prices from the Main Supplier that you entered.

Markup Systems

Goldenseal uses a markup system to calculate your selling price for each cost item. You can create as many markup systems as you need.

To view a markup system , follow these steps:

Click on the popup button next to the Markup field, and choose Edit List from the bottom of the menu. HINT: You can also choose Income Setup from the Income menu, then choose Markup Systems from the submenu.
You'll see a list of Markup Systems. Double-click on an item in the list.
Enter the method that is used to calculate each type of resale price. You'll include a markup percentage, a calculation method, and the way the price is rounded.

There are several calculation methods available for markups. Retail Markup adds a percentage of the final sale price, Simple Markup adds a percentage of the purchase price, and Fixed Addition adds a constant dollar amount. You can also use Manual Pricing, where you simply type in a resale price for each item, rather than using Goldenseal's calculation.

Price Rounding

When a markup system calculates the price for an item, it uses a rounding method to 'tidy up' the net amount. You can simply round to the nearest penny or dollar, or you can trim the price to a 'retail' amount such as .98.

To look at a rounding method, follow these steps:

Choose Income Setup from the Income menu, then choose Rounding Methods from the submenu.
You'll see a list of rounding methods. Click on one, and click the Edit button.
Enter a range of prices, and the way prices will be rounded in that range.
Repeat step 3 for as many price ranges as you'd like to use.

Discounts

Assign an item discount to each cost item that you sell. It determines the discount that customers receive when they buy this item from you.

HINT: To create a system of retail discounts, create both customer discounts and item discounts, and enter the discount that is given for each pairing of item and customer. The Sample Company File comes with an example of such a system.

To view an item discount, follow these steps:

Choose Income Setup from the Income menu, then choose Item Discounts from the submenu. HINT: You can also click on the popup button next to the Discounts field, and choose Edit List from the bottom of the menu.
You'll see a list of discounts. Click on one, and click the Edit button.
You'll see a list of customer discount classes, and the discount percentage that is given to each.

Suggested Quantities

The Suggested Quantity field sets the quantity that Goldenseal will 'suggest' for this item when you include it in estimates that use dimensions. Enter a dimension, or turn on the Calculated checkbox and enter a calculated dimension.

Inventory Setup

Click the Inventory Setup button to enter pricing, estimating and inventory details for a Cost Item. You can enter the following items:

Discount— enter the Item discount that you give when selling this item.
Suggested Quantity— the quantity that Goldenseal will ‘suggest’ for this item when you include it in estimate dimensions (see Lesson 4)
Inventory Info— enter the amount you keep in stock, and the action you’ll take when you are out of stock for this item.

Contract Setup

Click the Contract Setup button to enter contract text and pictures.

If you want to include detailed specifications in your contracts, enter Specs Text and other details in the Contract Setup section. Goldenseal will use them when it creates a ‘scope of work’ in contracts.

If you’d like to include a picture for this item, copy the picture in any graphic program, then click in the Picture field and choose Paste from the Edit menu (in Windows, right-click on the picture field and choose Paste from the popup menu).

Using Cost Items

To use cost items in business transactions, use an item breakdown (choose Items in the Breakdown popup field at the left side of the window).

You'll most often use cost items in the following transactions:

Material Purchases-- when you buy cost items for project use or resale.
Sales-- when you sell cost items to customers.
Estimates-- when you use cost items in a project.
Billing Records-- when you bill for cost items purchased for Time and Materials work.

Cost items are also used as components in assemblies.

Finishing Up

In this lesson, you have learned how to make cost items. With them, you can do a much better job of tracking the costs and the small details of your business. They are also a central part of the Goldenseal inventory tracking software.

Cost items can be addictive. If you have enough spare time, you could use them to track every expense you have, right down to the nearest paper clip.

Speaking of paper clips, did you know that they can be 'linked' into a chic hat of just about any size and shape?

HINT: An inner lining of aluminum foil will prevent paper clip hats from grabbing your hair. As a bonus, it will reflect wasted thoughts back into your brain and protect against lightning and low-flying laser beams.