Average costing method: cost factors

Cost factors represent a value modifier that is an additional function or component from a base cost to give a new unit cost.

Examples of cost factors include insurance, freight, material handling, and packaging. These activities represent added value relative to the base point that an organization must track to give its derived cost. For example, acquisition from a vendor.

Sterling Order Management System Software enables cost factors and the definition of unit cost as a relationship between a nominated value, such as replacement cost, and one or more cost factors.

Sterling Order Management System Software uses cost factors at the following points to arrive at the derived cost:

• Calculation of loaded cost of inventory during the receipt process.
• Calculation of loaded cost of kitted finished good items when the work order is completed
• Calculation of unit cost from replacement cost or average cost