Sage 100

v2015. The customer sells plastic products and the cost of plastic can be volatile. The valuation method is average cost. Sales reps get a percentage of the gross profit on each item sold. If there is 0 quantity on hand of an item, and a sales order is entered, the last cost is used. if the PO is received two weeks later and the cost is significantly different then the cost on the sales order, the sales rep's commission is calculated incorrectly. Is there are incorrect process, or is this WAD? Is there an alternative?

Probably a WAD. Tell them not to run out OR run negative.....

For some items, they special order... That is, they enter a PO only when there is an order. Of course they should never go negative .. or they will end up with an rcf.

It makes sense that at the time that the sales order is entered the last cost is used; that is all Sage has to go on at that time. I haven't tested this with average cost, but if the PO is received prior to Sales Order invoicing, then the invoice update process in Sage should be grabbing the proper average cost and not what is stored on the sales order. Another thought: Are they creating the PO from the Sales order? if so you would have a link between the two. Perhaps a custom report to get the true gross profit by linking in the PO that has the actual cost when received.

@DavidOverholt is correct - the cost on a sales order sometimes has nothing to do with the cost actually used at the time of the invoice update. If they're not invoicing until after they get the item, there wouldn't be an issue.

If possible, receive the PO Goods & Invoice before generating an invoice. Use FIFO or Lot Tracking to get a more accurate cost assigned to each invoice.

All great ideas. Thank you.

Lot/Serial valuation is the only way to force them to receive first (without a customization). If costs are volatile, the may find this to be advantageous to match the cost to price for margin properly anyway. There of course is extra work involved in this.