The margins calculated on Sales Orders (SO) and Quotes are calculated per order line and charge, using each product's current cost against the price provided.
Margin calculations for inventory-managed products
For products that track Stock on Hand (SOH), sales margins are calculated using the product's Average Landed Cost (ALC) at the time the SO's shipment was dispatched, or the current ALC if the shipment hasn't yet been completed. When a product currently has no SOH, its Last Cost will be used to calculate an advisory margin, which will be recalculated when the product is dispatched.
The formula used to calculate the sold product's margin is: % (Unit Sale Price - ALC) / Unit Sale Price.
Example: If a unit's sale price is $4.50, and its ALC is $2.98, the calculated margin would be: (4.50 - 2.98) / 4.50 = 0.3378, or 33.78%.
In some cases, a 0 ALC may lead to margins of 100%. This typically occurs when the product has no SOH, or when the product wasn't accurately assembled or receipted.
Margin calculations for Never Diminishing Products
For products that do not track inventory, Never Diminishing Products (NDPs), sales margins are calculated using the product's Last Cost or Nominal Cost. This means you're able to account for any costs incurred for additional services provided to your Customers per Sales Order.
The formula used to calculate the sold NDP's margin is: % (Unit Sale Price - Last Cost) / Unit Sale Price.
When diagnosing margin issues in NDPs, ensure that the Last Cost or Nominal Cost is not missing or set to zero, as this will affect margin calculations and potentially result in a 100% margin.
Diagnosing and resolving margin issues
If a Sales Order shows an unexpected margin, review the product's current Average Landed Cost (ALC), Last Cost, Nominal Cost (or Cost if it's an NDP), to ensure the correct values are being used during margin calculations.
When diagnosing such issues, it is critical to check if a product has a missing or zero Nominal Cost, as this results in the system assuming a cost of zero. Additionally, verify the Average Landed Cost (ALC) for inaccuracies, as an ALC of 0 can indicate stock was either not receipted correctly or is not on hand at the time of shipment.
If a discrepancy in margins is identified in an open Sales Order or Quote, consider removing the product's order line, using a Stock Revaluation or Stock Adjustment to update the product's costs to reflect accurate values, then re-add the product to the Order or Quote, for a more comprehensive resolution.