Glossary
Cost basis
Cost basis is the cost value the system carries for one unit of a product. Margin is price minus cost basis, and inventory value is quantity times cost basis.
What it is
Cost basis is the cost value the system carries for one unit of a product. It is the number the system uses whenever it needs to know what a unit cost. Two places read it constantly: margin, which is price minus cost basis, and inventory valuation, which is quantity times cost basis.
Cost basis is per unit and per product. It is not the price the customer pays, and it is not the total spent on a purchase order. It is the per-unit cost the system stands behind.
Why it matters
A warehouse that does not know its cost basis cannot know its margin. It can know revenue, it can know stock, but the space between them is a guess. Cost basis turns that guess into a number, and every decision about pricing, channels, and assortment stands on it.
Cost basis also keeps valuation honest across counts and adjustments. When stock is written down, the value written down is quantity times cost basis. When it is written up, the same.
A worked example
SKU WDG-1040 has a cost basis of 12.00 per unit and 500 units on hand. The inventory value is 6,000. At a selling price of 18.00, the margin on one unit is 6.00. If freight rises and the landed cost moves to 13.00, the cost basis follows, and the margin on the next order reads 5.00 without anyone editing a spreadsheet.
How DockingWare does it
In DockingWare, landed cost feeds cost basis: product cost plus freight, duties, and fees, resolved to a true unit cost per SKU, so margin and valuation read the cost it actually took to get the unit onto the shelf.
Questions
- What is cost basis?
- The cost value the system carries for one unit of a product. Margin is price minus cost basis, and inventory value is quantity times cost basis.
- Where does cost basis come from?
- From what it cost to get the unit into stock. Landed cost feeds cost basis: product cost plus freight, duties, and fees, resolved to a true unit cost.
- Why does cost basis matter for a warehouse?
- Because every margin report and every inventory valuation reads it. A wrong cost basis makes profitable products look like losses and losses look like wins.