Direct Cost Applied

Hi Forum,

If Purchases and Direct cost Applied will be Zero. then my COGS will be wrong. Because it will not iclude cost for freight and other distribution cost.

Our chart of account work like this : Purchase (Dr), COGS ( DR), Direct Cost Applied (-), Purchase Cost ( +) * invoices for freight and other distribution cost posted will go to this account,

Purchase, Direct Cost and Purchase Cost is zero and COGS will be left. Now if we take our Gross margin, Freight charges and other distribution cost was ignored. Then my GM is wrong.

Can somebody help me…


  1. COGS is always equal to Inventory costs (including all associated costs).

  2. Our Chart of… did u mean Inventory A/c instead of COGS here ??? Where u have mapped this account in Inventory posting Setup or General Posting Setup ???

  3. I cudn’t understand at all what u meant here “Purchase, Direct Cost and Purchase Cost is zero and COGS will be left.”

  1. COGS is always equal to Inventory costs (including all associated costs).

  2. Our Chart of… did u mean Inventory A/c instead of COGS here ??? Where u have mapped this account in Inventory posting Setup or General Posting Setup ???

  3. I cudn’t understand what u meant here “Purchase, Direct Cost and Purchase Cost is zero and COGS will be left.”

thanks for your reply. our FC set up this chart of account:

Sales -300000

Purchase 3rd party 100000

Purchase Intercompany



Cost of goods sold 90000

Direct Cost Applied -150000


Purchase Cost ( for Charge items) 50000 ( usually all Invoices for freight goes to this acct)


other Distribution cost 10000


With the above illustration, Purchases , Direct Cost and Purchase Cost are ZERO. Then my Sales Margin is overstated since cost for Freight etc was zeroed out.

Sorry if I cant explain properly…

But i really need your help.

No need to be sorry, but it is still not very clear, it would be nice if u cud send me ur Chart Of Accounts without figures , and please mention in front of every account where these account has been used i.e. Mapped in NAV.

  1. Sales -300000

  2. Purchase 3rd party 100000

  3. Purchase Intercompany


  5. COST

  6. Cost of goods sold 90000

  7. Direct Cost Applied -150000


  1. Purchase Cost ( for Charge items) 50000 ( usually all Invoices for freight goes to this acct)

  2. TOTAL COSTS -10000

  3. other Distribution cost 10000


Or if u can notice the numbers which i given u on LHS can u explain by them that e.g. 1 is used in Sales Account in General Posting Setup under Sales Account and then at last what ur issue is ? I got it up to some extent but unfortunately not completely.[:#]

can i have your email ID so i can give you some attachment…to explain more briefly…

Hi Ana Kristine,

There is nothing to worry!!

Assuming that I understood your email correctly, then let me explain…

  1. “Purchase” gets offset with Direct Cost (this is correct) and your case should be okay.

  2. Now, you are taking about “Purchasing Cost” and I guess it’s Frieght Cost & other Transport related Cost to the Inventory, then you should you use “Item Charges” in the Purchase Lines “Type = Item Charge” and by doing this, Navision will add the cost to the Item Cost. By doing this, your COGS will be correct.

You need to setup, Item Charges and then link it to the posting groups.

After you have done this, try it out with one example and your COGS will be correct.

Hope this helps!!

Kind regards,


Hi Blue Sky,

Thanks for helping me out. Actually I already used “Type= Item Charge” when posting a freight invoice and even assign them accordingly.

Purchases = Direct cost applied, correct?

For example:

  1. i post a sales invoice for EUR 100 incl freight when you look at the stat the COGS is 50 (without the freight)

  2. then i post puchase invoice excl. freight for the same order for EUR 55

  3. again i post another invoice for the freight EUR 20

Above will go to the following accts:

  1. invty -50

AR 100

Sales -100


  1. invty 55

purchase 55

direct cost applied -55

AP -55

  1. invty 20

purchase 20

direct cost applied -20

AP -20

Finally this will be my income statement

Sales -100

Purchases 75


Direct Cost Applied -75


GP -50

With above illustration …is it little bit clear… Now my question the cost for freight is not added to the COGS…with that my total COGS is not right ( coz Purchase = direct cost) and my GP is overstated…

Thanks a lot


Hi Tina,

Ok fine, if you have used Item Charges and Assigned them, then it’s fine.

After going through your above Entries, I found that your “Accounting Entires” are correct but I have also noticed that your “COGS” is EUR 50 but the Purchase Invoice posted is EUR 55 and you have Debited the Same EUR 55 with Inventory then why is your COGS 50 and why not EUR 55.

Any way, Now the only mystery is the missing Eur 20 of Freight Cost in your COGS.

Now, let me explain…

  1. In your above example, in Line No 3, you are posting the Purchasing Invoice of Eur 20 for Freight. Which is okay, but have you assigned this to Purchase receipts? this is very Important. you need to apply the Invoice with Item Charges to the Correct Purchase Receipt Lines"

  2. After posting the Invoice, go to Item Card for the Item and place the cursor on Entry type-Sales-Value Entries. Now check the field “Cost Amount Actual” it should have the second line of the Cost for freight showing as Entry Type- “Direct Cost”. Check the Cost Per Unit field, this will include the Frieght Cost as well.

The Same will also be updated in Item-Ledger Entries-Entry type-Purchase-Value Entries-should have the second line of the Cost for freight showing as Entry Type- “Direct Cost” along with the “Item Charge No” & Description.

  1. Now, if you do not see the cost updated in the fields as explained above, then, run “Adjust Cost Item Entries batch Job” this is very important, if not, the cost will not be updated. This Suggestion is assuming that you have not set Automatic Cost Adjustment as "Always"

Once you have run the batch job, go back to Item-Ledger Entries-Sale-Valu Entries…the cost should be updated now.

Good Luck and pls let me know the outcome…

Kind regards,


Hi Blue sky!!!

thanks a lot…it works…

1.Yes, I am assigning all item charges to correct purchase receipt.

2.Yes there is some diff because e.g int he item card the Cost is 5 but when you post the purchase invoice cost may change…

  1. I change the AUTOMATIC COST ADJUSTMENT to always…but now i have a big problem …my previous months report changed also…expecially the COGS account…i dont know now how to explain to my FC…and how to rectify…



Hi Ana,

This could have been avoided if you have locked your Posting dates in G/L, prior to running the Adjust cost batch job, so that cost would have posted to the current month rather than rolling backwards.

Just wondering, why didn’t your Local Partner explain about this feature, its quite important in costing. You need to now explain to your FC and make them understand on the costing aspect.

Next time, please always test in Test Data base and understand the Consequences prior to doing anything in Live System.

Good Luck,

Kind regards,


hi reddy,

they never expalined everything to. good that i found this Forum…i will just explain to my FC about this…oh they will kill me :slight_smile:

Can you teach me how to lock my posting dates…

thank you very much again…


Hi reddy,

Again, If i set the COST ADJUSTMENT to ALWAYS…will affect again my previous month reports? or only those which I have recently posted.

Supposed I already adjust the cost for Jan- Aug ( which I just did) then I change the settings to ALWAYS…will it affect again my previous cost…



Hi Tina,

No worries…you welcome. That is what happens when Navision Partners do not Transfer proper knowledge to the end users.

Anyway, this site is very valuable and it has lot of Navision Consultants who are always helping and sharing their Ideas and solutions. Nevertheless, answers provided here will be based on standard navision, so you need to test it out in your own localized version prior to performing in your Navision Live Data base.

Now, let me answer your question.

Like I explained, you can always allow the cost to only post for the current months if needed, instead of posting to back dates. The allow posting date feature is available:

Go to-Financial Management-G/L Setup-General Tab-look at these fields -“Allow Posting From” & “Allow Posting To

For Instance: in the field "Allow Posting from “enter the date 01/09/09 & in the field " Allow Posting To” enter the date “30/09/09

Now, any cost that is adjusted will only be posted in the month of September and will not roll backwards. So for your case, if you follow the above method, there should be no Issue. However, please test it out in your own test data base prior to performing in your Navision Live system.

Since you have completly updated the cost from “Jan-Aug” you should lock your periods and only open the dates for september. If system updates the cost once then there is nothing to update again even if the cost adjustment is always unless otherwise there are some new invoices related to previous orders. However, by locking the dates, system will post the new updated cost to the current month.

Why did you again remove the “Automatic cost Adjustment” from being always to “Never” if you do this, you need to run the “Cost” batch Job every time to get the most updated cost. Microsoft cautions that this feature might tamper the performance of Navision but atleast I did not encounter it inspite of huge transactions and it runs fine with no Issues.

However, suggest to run the “adjust item Cost” batch atleast once a month (just prior to month end closing) even if your cost adjustment is set as “Always”.

Please explain this to your FC and your problem should be solved!!

Kind regards,



HI Reddy!

I am so thankful that there a forum created for NAV user…and also thankful to you for helping me.

Honestly there are a lot of things which we dont know…and I really dont know what will happen if our manufacturing will start next year…I cant imagine the worst scenario and for sure I will always post a question in the FORUM :slight_smile:

I have already fill the Allow posting from and to ( Sept 1 , 2009 to Sept 30, 2009). Do this mean that all adjustment to cost, adjustment to foreign currency will be posted to this month only?

I have check the Test database and it is most likely that I have to change the ALOOW POSTING DATE monthly. ANyhow its okey at lesat I will have control of the datas.

I put back “Automatic cost Adjustment” to “Always” . The reason i changed again to “never” because i Am not sure if my previous reports will be affected or not.

Well thank you very much again. Hope to hear from you again in case I have more queries.


Hi Reddy,

I have now a big problem. I have follow the above instruction. But when I run my trial balance today…all COST of GOODS SOLD for the previous month changes :frowning:

What I have to do know…

Please help…