Understanding the business costing model

The highest significant cost of organizations is encumbered in the inventory costing. In this sense, one of the main objectives of ERP implementation is to manage, reduce, and control inventory costing. The inventory significantly affects the company's bottom line and profitability as well. The companies that carry inventory as a raw material for production bear the cost of inventory, which in turn affects the cost of production in addition to the goods in the process and the cost of goods sold (COGS) accordingly. The companies that carry inventory as stock for sales bear the inventory cost, which in turn affects the cost of goods sold.

The main driver of inventory cost is the purchase cost from the vendor in addition to all the costs that are paid until the goods are received into the company's warehouse, such as freight, customs duties, and loading. All these are known as miscellaneous charges, which is a function name in Microsoft Dynamics AX.

The...