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How to account for the costs and invoice repair or service charges to customers?

posted Jan 23, 2009, 12:34 AM by Unknown user   [ updated Feb 26, 2009, 7:29 PM ]
Scenario:
A customer bought a computer from your shop 2 years ago. After the warranty expires, she sends it back to you for a repair. You have to send the computer back to a supplier for the repair. The supplier charges you RM100 and you invoice the customer at RM150.


Challenges:
In order to achieve a good invoicing technique, there are a couple of challenges which may arise:
  1. If only 1 item code is used for every repair with different costs, average costing will take place. This will not reflect the correct amount for the respective repair costs.
  2. The hassle of creating an item code every time there is a need to invoice a repair.


Method 1: (Recyclable Approach)
  • Create a number of item codes for different branches.
  • Eg. 10 item codes in sequence for Branch1, Branch2, etc.
    • REPAIR - BRANCH1 - 001
    • REPAIR - BRANCH1 - 002
    • REPAIR - BRANCH2 - 009
    • REPAIR - BRANCH2 - 010
  • Please refer Add Items.
  • Whenever, a supplier sends back a repaired computer, a GRN (Goods Received Note) or Direct Receiving Stock (Trading) / Direct Receiving Stock (Procurement) will be entered into EMP. This will automatically stock up the item codes in inventory. Even though it does not seem logical to stock up repairs in the inventory, this procedure is essential or you cannot issue invoices, as EMP can only recognize a sale if there is stock in the inventory. This is to to prevent mistakes and to ensure that you do not make a sale if the item does not exist in inventory.
  • During invoicing, for every customer, use different item codes. Make sure that the chosen item code is not in use or average costing will occur. Then, enter the list price (price to be invoiced to the customer).
Weaknesses:
    • Before assigning an item code to an invoice, you must always check if the item code is in use or the costing will follow average costing.
    • It might be very confusing for the user to choose which item code to use.


Method 2: (Cost Price Point Approach)
  • Create a number of item codes according to the cost price from supplier.
  • Eg. For cost prices of RM 100 to RM200.
    • REPAIR - 100
    • REPAIR - 150
    • REPAIR - 200
  • Average costing does not affect this method as each item code contains the same cost price because even after average costing, the price is still the same.
  • Whenever you want to invoice the customer, select the correct item code and input the price after adding profit in the price list in the invoice.
Weaknesses:
    • Costs from supplier always varies. As the item codes are actually range of prices, you will have to create new item codes if the cost is for example RM 206.50.
    • If customers can figure out the item codes, they will be able to know the cost price.


Method 3:
(Quantity Approach)
  • Create a designated item code.
  • After receiving the computer back from the supplier, create a GRN or Direct Receiving Stock. Always set a price at RM1. Then, input a number of quantity to follow the cost price. Refer the example below.
  • In the invoice, alter the price after a profit margin (eg. 20%) and enter the price in the invoice to the customer. The quantity in the invoice cannot differ from the quantity in the GRN as you have already 'stocked in' that quantity.
 GRN Quantity Price Amount
 Repair 100 1.00 100
 Invoice   
 Repair 125 1.20 150

Weaknesses:
    • Since the quantity and price are fictitious numbers, the true information is not reflected in the invoice. It will be difficult to extract information from the invoice in the future.
    • In order to enter the correct quantity, you must work backwards, which may sometimes be very confusing to the user.

For other information, please refer RMA (Branch) and RMA (Department).


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