Assign specific cost to specific products sold
Conceptually, yes, of course; let's do this. Practically it's very difficult, especially for channel-driven companies. Let's say you ship a pallet of microcontrollers to Avnet at a purchase price of $9.37/unit. Two weeks later you ship another pallet of the same SKU to Avnet at a purchase price of $8.94/unit. Two weeks after that, Avnet sells 1000 units of the microcontroller to an ODM. How do you recognize the cost of that transaction? $9370? $8940? Average?
Truth be told, there are many different ways to report cost of product sold. Some companies just use partner "reported cost" for simplicity—taking what the partner reports as the cost of product for a given transaction. However, there is no standard definition of reported cost. Is it the first price the partner paid for a set quantity of product, the last price, or perhaps the average price among several shipments and orders?
What was the cost of that product that just sold? Should I use FIFO, Reported Cost, Price Book, Reported Price, Serial Number Matching, or some other method? Incorrect valuation can erroneously inflate revenues or commissions and make it nearly impossible to get an accurate channel inventory picture.
For companies using a cost basis for commissions—especially those who recognize revenue or pay commissions on a sell-through basis— incorrect POS and inventory valuation may end up erroneously inflating revenues or commissions if the reported cost is not validated. In some cases, the partner’s resale price is actually reported in the cost field of the POS. Using that price would completely skew revenues and commissions.
Transaction valuation is also a necessary first step for accurate channel inventory tracking and management. Properly-valued transactions flow directly into SISO Inventory Reconciliation.