The past few years I’ve ventured into the SCM code base of AX, and I most admit I found the physical operations easier to comprehend than their financial counterparts. Perhaps it is just the terminology, or perhaps its because I’m “just” an engineer. At any rate I discovered I’m not the only one struggling – so here is an high level overview of the Cost Management domain and how it is handled in Dynamics AX.
A company is profitable if it can sell its goods for a higher price than they paid for them. This difference is called the Gross profit, it can be found on the Income statement, and is the difference between Sales and Cost of goods sold (COGS). In other words, COGS directly influences the company’s profitability and the amount of tax to pay. The General accepted accounting principles (GAAP) describes several Costing principles, i.e. ways COGS can be measured. As the costing principle(s) used can have a significant impact on the company’s financial performance, there must be full disclosure to which costing principle(s) is used. For these reasons companies are inclined to stay with their current costing principle. The history of accounting for costs predates computer science and ERP systems. Several of the costing principles in use today reflects this fact – they are designed to be applied periodically (in the past by a book keeper with a pen in his hand). The inputs to the costing calculations are called cost elements. They include Direct cost (purchase price of finished goods or raw material) and Indirect cost (such as labor and equipment).
In Dynamics AX the Costing principles are called Inventory models. An Inventory model prescribes how Direct cost is determined. Indirect cost is always estimated. These estimations are provided by the Costing sheet.
In the following consider this sequence of event:
AX supports these Inventory models:
AX 2009 Costing models: http://www.microsoft.com/en-us/download/details.aspx?id=1041
Moving average: http://technet.microsoft.com/en-us/library/hh597235.aspx
More background: http://www.accountingcoach.com/inventory-and-cost-of-goods-sold/explanation