FAQ: Valuation & COGS
Quick answers to common questions about how inventory value is calculated.
Q: What is the difference between cost and selling price?
A: Cost (or COGS) is what you paid to buy or make an item. Selling price is what you charge the customer. The difference is your profit.
Example: You buy medicine for 50 AFN and sell it for 150 AFN. The cost is 50 AFN, the selling price is 150 AFN, and your profit is 100 AFN.
Q: If I change the selling price of a product, does COGS change?
A: No. COGS is based on what you originally paid for the item, not the price you charge. You can change your selling price without affecting COGS. However, lowering your selling price does reduce your profit margin.
Q: What happens to COGS if I purchase the same item at different costs?
A: Usystems uses weighted average cost. When you have items at different costs, the system calculates a single average cost based on all units and their prices. When you sell, it uses this average, not the specific cost of individual units. This simplifies tracking and ensures consistent profit calculations.
Example: You have 100 units at 100 AFN and 50 units at 120 AFN. The weighted average is (100×100 + 50×120) ÷ 150 = 106.67 AFN. When you sell 10 units, COGS is 10 × 106.67 = 1,066.70 AFN.
Q: Does COGS include shipping or import costs?
A: Not automatically. When you receive inventory via a purchase order or cash purchase, the system records the item cost shown on the purchase document. If you want shipping or import costs included, they should be added to the item cost before you receive it, or you can post a manual valuation adjustment afterward.
Q: Can I adjust COGS after I've sold an item?
A: You cannot directly change the COGS of a completed sale. However, if a physical count reveals that your inventory quantity or cost was wrong, you can post a count adjustment or valuation recount, which recalculates the weighted average cost for future sales. Past sales remain as they were recorded.
Q: Why is my profit lower than expected if I sold at a high price?
A: Your profit depends on COGS, not just selling price. If COGS is higher than you expected, your profit will be lower. This can happen if:
- You paid more for the items than you remembered.
- Your inventory includes items from a recent expensive purchase, raising the weighted average.
- Delivery or import costs were added to the item cost.
Check your purchase history and weighted average cost in the inventory list.
Q: How does COGS work with discounts?
A: COGS and discounts are independent. If a customer receives a discount on an invoice, COGS is still based on the actual cost of the items, not the discounted amount. The discount reduces revenue, which shrinks your profit margin, but it does not change COGS.
Example: An item costs 100 AFN and normally sells for 200 AFN. If you give a 20 AFN discount (selling price becomes 180 AFN), COGS is still 100 AFN, but your profit on that sale is only 80 AFN instead of 100 AFN.
Q: Does COGS change when I transfer inventory between warehouses?
A: No. Transferring inventory between warehouses does not change COGS or the weighted average cost. The cost stays the same because the item itself is unchanged — it is only moving to a different location.
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