Thursday, 23 February 2012

Margin Vs. Markup in dynamics Ax

Item Pricing:
Item price is the default price in item master. MS dynamics Ax stores 3 prices for each item:
  1. Base purchase price
  2. Base cost price
  3. Base sales price
Path: Inventory > items details > price/discount tab

The purchase or cost prices are your cost. They can be manually entered or updated from the last purchase price or the last production receipt of the inventory. The sales order price is the selling price if trade agreements do not exist. A trade agreement can override from the price listed here.
Sales price can be manually entered or it can be calculated as the margin percentage or markup percentage from cost.  Since the item displayed two different costs, the purchase order price and the item price, the user can decide which cost should be used for markup.

Item Pricing option:

The setup tab of item master is where pricing option are determined.

If latest purchase price is checked, then the purchase order price on price/discount tab will be updated with most recent purchase price each time an invoice is posted against the purchase order.

If latest cost price is checked, then the cost price on price/discount tab will be updated with most recent price when the production is completed and item is received into inventory. The cost price is used in inventory and production modules.

The sales price model contains 3 options:
  • None: manually enter selling price on the price/discount tab.
  • Contribution ratio: calculate price based on a desired margin.
                              Price = (cost / 1- contribution margin) 
  • Misc. charges pct: calculate price based on a markup percent.
      Price = (cost + cost x Misc. charges pct.)

If the sales price model is set to Contribution ratio or misc charges pct. Then the base price is use to determine whether the purchase or cost price from the price/discount tab should be use. This would be the basis of markup. The contribution ratio and misc charges pct. fields are used with respective options selected for the sales price model. 

Margin vs. Markup
What is the difference between Contribution ratio and Misc. charges pct. ?

Example: Cost price $100

Price = cost / (1- contribution ratio)
Price = 100 / ( 1- 0.20)
Price = 100/0.80
Price = $125
Price = cost + (cost x Misc charges pct.)
Price = 100 + ( 100 x 0.20)
Price = 100 + 20
Price = $120

If contribution ration is selected as sales price model, then the contribution ratio must be enter. If misc charges pct is selected as sales price model, then the misc charges pct field must be enter. 
The price will be calculated from the source selected as the base price either purchase or cost price. In this example we have selected cost price as base. Microsoft dynamics ax will find cost price listed on price/discount tab.

The contribution ratio is margin and Misc charges pct is markup. The percentage entered in fields is whole numbers. Divide the number by 100 to arrive at decimal number that is used in calculation shown here.

If the price is calculated from cost, then the sales order price on price/discount tab will automatically updated when the record is saved, the date of price will also be updated. 


Niels Westerweel said...

Is my understanding correct, when using the contribution ratio and I set the percentage to 0,00 this doesn't work? Users want the sales price to be the same as the costprice. not having to manage both. We set the costprice and make the salesprice Price=cost/(1-0,00) = price?

Niels Westerweel said...

Am i right when i asume that using the contribution ratio with a percentage of 0 (zero) AX 2009 will not calculate a salesprice? what we want is salesprice= costprice. Only managing costprices.

Anit Chandra said...

Hi Niels,

Sorry for my inattentiveness. if yor customer wants the same sales price as cost price. you can mark the latest cost price option true. or you can define none as sales price model. b'coz here you dont want to any contribution over cost price.

black_princess said...

excellent post! this is the kind of information that should be shared across the internet. keep it going! Kudos :)