How to Set Up and Use Costing Methods in Luminous

Luminous offers three costing methods to allocate costs for your inventory: by unit, by volume, or by weight. This guide walks you through how to configure these settings and apply them to your products to ensure accurate cost allocation.

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Step 1. Access System Settings

1. Go to the bottom left corner of your screen in Luminous.
2. Click on your name and select System Settings.

Step 2. Update the Costing Method

1. Within the System Settings menu, click on Inventory Settings.
2. Locate the field labeled Cost Allocation Type.
3. Choose one of the following options:
   • Unit-Based Allocation: Default method, allocates costs equally by unit.
   • Volume-Based Allocation: Allocates costs based on product dimensions.
   • Weight-Based Allocation: Allocates costs based on product weight.
4. Save your changes.

Step 3. Ensure Product Information is Accurate

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If you choose Volume-Based or Weight-Based allocation, follow these steps:

1. Navigate to the product catalog in Luminous.
2. Edit each product and input the required details:
   • Weight (if using weight-based allocation).
   • Dimensions (if using volume-based allocation).
3. Verify that all entries are accurate to ensure proper cost allocation.

Step 4. Apply Extra Costs to Shipments or Purchase Orders

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When extra costs (e.g., shipping fees) are added to a shipment or purchase order:

• Luminous will allocate these costs based on the selected costing method:
  • Unit: Distributes cost equally among all units.
  • Volume: Allocates costs proportionally based on product dimensions.
  • Weight: Allocates costs proportionally based on product weight.

Step 5. Process by Shipment (Alternative Method)

1. When creating a receiving report, you can choose to filter by Shipment Reference:
   • Enter the shipment reference number (e.g., "269-1") to view related items.
2. Add or edit additional costs for this shipment:
   • Example: Add shipping costs of $400 or any other relevant fees.
3. Costs will be allocated across the shipment’s units, impacting their landed cost.

Step 6. Review Inventory Valuations and Reports

• The costs added to the receiving report will impact:
  • Landed Cost: Ensures accurate cost per unit.
  • Inventory Valuations: Reflecting updated values in your inventory records.
  • Cost of Goods Sold (COGS): Ensuring accurate reporting for financials.

Example Use Case

Let’s say you’re shipping golf bags (large, bulky items) and golf towels (small, lightweight items):

• If you choose Unit-Based Allocation, costs will be divided equally among all items, which may not reflect actual costs.
• Using Volume-Based Allocation would account for the significant size difference between golf bags and towels, providing a more accurate landed cost.

Worked Example: $1,000 Freight on Golf Bags and Towels

You receive 100 golf bags and 100 golf towels in one container, with a $1,000 freight bill. For this example, say each bag takes up 2 cubic feet and each towel takes up 0.1 cubic feet.

• Unit-based: $1,000 ÷ 200 units = $5.00 of freight on every bag and every towel. A small towel absorbs the same freight as a bulky bag, which overstates the towel's cost and understates the bag's.
• Volume-based: total volume is 200 + 10 = 210 cubic feet, or about $4.76 per cubic foot. Each bag gets about $9.52 of freight and each towel about $0.48.

Both methods allocate the full $1,000, but volume-based allocation puts the cost where the space was actually used. That gives you more accurate landed costs, margins and pricing decisions for each product.

Key Considerations

• Unit-Based Allocation works well for similar-sized products.
• Volume-Based and Weight-Based methods are ideal for diverse product sizes and weights.
• Regularly update product weights and dimensions to ensure accurate cost distribution.

Common Questions

What's the default costing method? Unit-based allocation. You can change it to volume-based or weight-based in System Settings > Inventory Settings > Cost Allocation Type.

What do I need before switching to volume or weight? Accurate dimensions or weights on each SKU. Edit each product to add them, since allocation is calculated from those values.

When should I use weight instead of volume? Weight usually fits when your freight is charged mainly by weight, such as heavy, compact goods. Volume usually fits when bulky, light products take up most of the container space.

Related videos: How to Add Costs Upon Receiving in Luminous and How Receiving and Inventory Adjustments Affect Cost Layers in Luminous.

By customizing your costing method, you can achieve more precise landed costs, improving your overall inventory management and financial insights.