Inventory Products: Product Costs – Centegra

Product Costs Explained

Throughout Centegra Plus, Inventory Management product costs are updated on a last cost basis.

The cost of Supplied products at a each site is based on the latest cost within that site, which comes from:

The cost in the most recent supplier order in the past 30 days. If no supplier order exists:
The cost in the most recent cash purchase in the past 30 days. If no cash purchase exists:
The transfer in cost of the most recent transfer into site in the past 30 days. If no transfer in exists:
The cost stored against the most recently added supplier product that is stored against the supplied product and marked as 'enabled'.

The theoretical cost of Recipe products at each site is derived from the sum of the cost of all of its Supplied components. Therefore:

To view the theoretical cost of a recipe at an individual site based on products received into that site, access the recipe whilst logged into that site.
To view the theoretical cost of a recipe overall based on the general product setup, access the recipe when logged into the Head Office site. (Against the Head Office site, there should be no activity as per points 1 to 3 above, and therefore the costs are shown based on point 4.)

Viewing Product Costs

Costs In Inventory Reporting

Inventory costs are available throughout many Inventory Management reports and Period Management Reports within Centegra Plus, however a few core reports to mention are as follows:

To view supplier costs stored against Supplied type products, see the Supplied Products Report.
To view recipe costs stored against Recipe type products, see the Recipe Products Report whilst logged into the relevant site (or into the Head Office site as mentioned previously).
To view the cost price history of a Supplied product at each site, see the Cost Price Analysis Report.

Costs Within Product Setup

You can view any recipe products theoretical cost within the product page.

As covered previously, the recipe cost shown here is based on the site that you are logged in to.

To view a recipes theoretical cost:

Head to Product Management > Products.
Complete a search to locate the product and then select [EDIT] then [PRODUCT].

The theoretical cost is shown beneath the recipe components, within the Recipes tab.

You can also see the theoretical margin against each available price for the product.

Scroll to the bottom of the product page to the Additional Product Information section.
Select [PRICES & COSTS].

The theoretical cost is shown alongside each available price level for the product, therefore displaying a gross profit margin percentage per price.

Theoretical Costs & Actual Costs Explained

A key inventory reporting metric is the comparison of Theoretical Gross Profit Margin versus Actual Gross Profit Margin.

For clarification, the Gross Profit Margin, often referred to as just margin or GP, is the value of net sales less product cost. It is often displayed as a percentage of net sales.

The product cost can be either Theoretical or Actual, hence the two different values to compare:

Theoretical is based on what it theoretically costs to sell the products sold, based on their recipes.
Actual is based what stock you physically have counted at the start and end of the period, and the movements declared throughout the period.

The aim is to have as small a gap between the Theoretical and Actual as possible. Any difference between the two is considered a loss, where this loss may be known (e.g., through declared wastage or food preparation) or it may be unknown (i.e., period variance). More information on analysing the difference between the two is available in This Article.

Theoretical Costs & Margins

Each recipe product has a Theoretical Cost.

This is the cost based on the recipes ingredients.

As each product it sold, the recipe Theoretical Cost is assigned to the product within the transaction, and then at the end of the stock period the sum of all product sales throughout the period generates a period total Theoretical Cost of Sales.

Based on net sales within the period, the Theoretical Gross Profit Margin (how much they should have made in theory) is calculated using:

Net Sales - Theoretical Cost of Sales = Theoretical Gross Profit Margin

For example, if:

Theoretical Cost = £500
Net Sales = £2000

...then the Theoretical Gross Profit Margin is £1500.

Often, the Theoretical Gross Profit Margin is displayed as a percentage of net sales, as it helps to visualise it this way when comparing against data from other sites, previous periods, and so on.

This is calculated using:

(Theoretical Gross Profit Margin / Net Sales) x 100 =  Theoretical Gross Profit Margin %

So, in this example: (1500/2000) x 100 = 75%.

The aim is to be as accurate as possible when generating theoretical values, and this is done through accurate and efficient inventory configuration.

Things which can be done to help this include:

Supplier prices should be accurate and kept up to date.
Recipes should be precise with correct ingredient quantities and costs.
Supplier orders should be checked and received in promptly.
Sales from the POS and remote sources should be recorded in real-time.

Actual Costs & Margins

The Actual Cost of Sales is calculated at the end of a period is based on declared counts and movements.

This is calculated based on:

The value of stock at the start of the period. (I.e. The value of stock at the end of the last period.)
+ the cost of supplier orders and cash purchases
+ the cost of transfers in
- the cost of transfers out
- the value of stock at the end of the period. (Based on the stock count.)

For example, if:

Opening Cost: £1000
Purchases Cost: £1500
Transfers Cost: -£250
Closing Cost: £1700

...then the Actual Cost of Sales is £550

Based on net sales within the period, the Actual Gross Profit Margin (how much they actually made based on stock movements) is calculated as:

Net Sales - Cost of Sales = Actual Gross Profit Margin

So, in this example, if:

Actual Cost = £550
Net Sales = £2000

...then the Actual Gross Profit Margin is £1450.

Often, the Actual Gross Profit Margin is displayed as a percentage of net sales, as it helps to visualise it this way when comparing against data from other sites, previous periods, and so on.