How Cost Layers Work When Completing an Assembly Order in Luminous

Understanding how cost layers are created during assembly orders is crucial for accurate inventory and cost management. Follow these steps to see how costs are calculated and applied in Luminous.

Step 1: Start an Assembly Order

1. Begin an assembly order in Luminous, such as creating "Chocolate Chip Bars."
2. Add all required components to the order, specifying their quantities and unit of measure.
   
   • Example: Cocoa, Flour, Sugar, and Butter.

Step 2: Calculate Component Costs

1. Luminous calculates the landed cost of each component based on its unit of measure and quantity.
   • Example: If assembling by grams but purchasing in kilos, the system will adjust the cost accordingly.
2. The system sums up the costs of all components for the finished product.

Step 3: Add Extra Costs (Optional)

1. In the assembly order, scroll to the Extra Costs section.
2. Add any additional costs, such as:
   • Labor fees.
   • Outsourcing expenses.

Step 4: Complete the Assembly Order

1. Mark the assembly order as Completed.
2. Click Save to finalize the order.

Step 5: Understand Cost Layer Creation

1. Upon completion, Luminous creates a new cost layer for the finished product.
2. The unit cost of the finished product is calculated as:
   (Sum of component landed costs) + (Extra costs)
   • Example: The cost of a single "Chocolate Chip Bar" includes the combined costs of Cocoa, Flour, Sugar, Butter, and any labor fees.

By following these steps, you ensure accurate cost tracking and efficient inventory management when completing assembly orders in Luminous.

Key Takeaways

• Every completed assembly creates a new cost layer. When you mark an assembly order as completed and save it, Luminous records a cost layer for the finished product, so each batch carries its own unit cost.
• Component costs are landed costs. Luminous uses the landed cost of each raw material, not just the purchase price, so freight, duties and other costs captured at receiving flow into the finished good.
• Units of measure are handled for you. If you buy flour by the kilo and use it by the gram, Luminous converts the cost to match the unit you assemble with.
• Extra costs are added on top. Labor, outsourcing or packaging fees entered in the Extra Costs section are added to the component total for the finished units.
• The formula is simple. Finished unit cost equals the sum of component landed costs plus any extra costs.

Why cost layers matter

Accurate cost layers keep your cost of goods sold (COGS) honest. When finished goods carry the true cost of what went into them, your margins, inventory valuation and accounting reports reflect reality instead of estimates. It also means that when ingredient prices change from one purchase to the next, each new batch picks up the new cost automatically, with no spreadsheet math required.

This matters most for brands that make or assemble their own products, where small changes in raw material prices or labor can quietly erode margins if they aren't tracked batch by batch.

To see how costs build up earlier in the process, watch How Purchasing Affects Cost Layers in Luminous and How to Add Costs Upon Receiving in Luminous, or learn more about costing in Luminous.

Common questions

Do earlier batches change when component prices change? No. Each completed assembly order creates its own cost layer from the landed cost of the components it uses, so earlier batches keep their cost and new batches reflect the new prices.

What if I don't add extra costs? Then the finished unit cost is simply the sum of the component landed costs. Extra costs are optional and only needed if you want labor or outsourcing reflected in the product cost.

Where does the landed cost come from? From your purchase orders and any costs added at receiving, such as freight or duties.