How to calculate recommended sale prices using profit estimation tool

Applies to: 1C:Drive 1.5.3
Related modules: Sales, Production
Created on: January 1, 2024

Objectives

In 1C:Drive version 1.5.3, profit estimation functionality was greatly enhanced and expanded, offering a powerful tool that can:

Calculate profit expected from a sales order.
Recommend sale prices required to reach desired profit margin on a sales order.

After completing this tutorial, you will:

Know how profit estimation tool works.
Learn to calculate sale prices required to reach a set profit margin.

Prerequisites

To complete this tutorial, it is recommended that you:

Have a basic understanding of sales orders and bills of materials in 1C:Drive.
To learn about sales orders, read this article.
To learn about bills of materials, read this article.

Case description

Animal Feed Manufacturer is a company specializing in production of animal feed and vitamins. They purchase raw ingredients, process and package them, and sell the resulting feed. Some of the production activities can be delegated to a subcontractor.

The production process is in three stages:

To guarantee reasonable profit from their sales, the company needs to monitor a lot of factors, including the purchase prices of ingredients, the cost of subcontractor's work, the selling prices, and more.

Consider a case where the company receives an order for 1 package of poultry feed mixture (produced internally), 1 package of animal feed mixture (produced by a subcontractor), and 1 package of vitamins (purchased in bulk and packaged).

Let's see how we can determine the optimal sale prices by using 1C:Drive's profit estimation tool.

Key steps

During the tutorial, you will go through the following steps:

Set up 1C:Drive
Fill initial data
Register purchase of raw ingredients
Perform profit estimation
Customize profit estimation
Generate reports

Setting up 1C:Drive

Let's start with making several quick changes to 1C:Drive default settings. These changes are needed to run the tutorial.

Enable multi-business accounting.
This allows you to create additional companies. You need it to register Animal Feed Manufacturer.
To do this:
1. In Settings, under Accounting settings, click Company.
2. Select the Use multi-business accounting checkbox.
Now, when you go to Company, you can see the Companies link instead of Company details. Follow this link to register additional companies for your business.
This step is optional. You can skip it and complete the tutorial using the default company if you want.
Enable Production subsystem.
You need it to manage production processes for Animal Feed Manufacturer.
To do this:
1. In Settings, under Accounting settings, click Production.
2. Select the Enable Production subsystem checkbox.
Now you can see the Production link in the main menu. Click this link to access the production functionality.
Enable hiring subcontractors.
You need it to manage the cost of subcontractor work for Animal Feed Manufacturer.
To do this:
1. In Settings, under Accounting settings, click Purchases/Warehouse.
2. Select the Receive subcontracting services checkbox.
Now, when you click Purchases in the main menu, you can see the Subcontracting services received section.
Enable supplier prices.
You need it to manage the purchase prices for raw ingredients.
To do this:
1. In Settings, under Accounting settings, click Purchases/Warehouse.
2. Select the Register supplier prices checkbox.
Now, when you click Purchases in the main menu, you can see the Prices section.

Filling initial data

The next step is to fill 1C:Drive with the initial data you will need during the tutorial.

Create a company named Animal Feed Manufacturer.
To do this, go to Company > Companies and click Create. Then, enter the company details as on the screenshot below and click Save and close.
This step is optional. You can skip it and complete the tutorial using the default company if you want. Just make sure the default company has a VAT ID.
Create an accounting policy for Animal Feed Manufacturer.
To do this, go to Company > Accounting policy and click Create. Then, enter the details as on the screenshot below and click Save and close.
Create two suppliers:
- Milwaukee Meat Industrial (the supplier that sells you raw ingredients)
- Ivar Feed Processing (the subcontractor that helps you manufacture the animal feed)
To do this, go to Purchases > Suppliers and click Create. Then, enter the supplier's name and click Save and close. Repeat for the other supplier.
Create a customer named Agricultural customer.
To do this, go to Sales > Customers and click Create. Then, enter the customer's name and click Save and close.

Product	Replenishment method
Feed mixture for poultry	Purchase
Granular feed mixture for poultry	Production
Dried feed mixture for poultry	Subcontracting
Packaged feed mixture for poultry	Production
Animal feed mixture	Purchase
Granular animal feed mixture	Subcontracting
Dried animal feed mixture	Purchase
Packaged animal feed mixture	Subcontracting
Universal vitamin kit	Purchase
Packaged universal vitamins	Production

To do this, go to Production > Products and click Create. Then, enter the details as on the screenshots below and click Save and close. Repeat for each product.

Note that replenishment methods for the products only reflect preferred sources for these products; following them is not mandatory. For example, the company will manufacture Dried feed mixture for poultry instead of delegating it to a subcontractor.

Create bills of materials for the products:

Finished product	Process type	Component	Operation	Workload
Granular feed mixture for poultry	Production	Feed mixture for poultry	Granulation	10
Dried feed mixture for poultry	Production	Granular feed mixture for poultry	Drying	10
Packaged feed mixture for poultry	Production	Dried feed mixture for poultry	Packing	10
Granular animal feed mixture	Production	Animal feed mixture	Granulation	10
Dried animal feed mixture	Production	Granular animal feed mixture	Drying	10
Packaged animal feed mixture	Production	Dried animal feed mixture	Packing	10
Packaged universal vitamins	Assembly	Universal vitamin kit

To do this, go to Production > Bills of materials and click Create. Then, enter the details as on the screenshots below and click Save and close. Repeat for each bill of materials.

Create manufacturing overhead rates.
To do this, go to Production > Manufacturing overhead rates and click Create. Then, enter the details as on the screenshot below and click Save and close.
Create a sales price type.
You will need it to calculate the price at which you should sell the products to reach the desired profit margin.
To do this, go to Sales > Price types and click Create. Then, enter the details as on the screenshot below and click Save and close.
Specify the desired profit margin for each product you sell.
To do this, go to Sales > Pricing and click Create. Then, enter the details as on the screenshot below and click Post and close.
Create supplier price types for both suppliers.
To do this, go to Purchases > Supplier price types and click Create. Then, enter the details as on the screenshots below and click Save and close. Repeat for the other supplier.
Specify the subcontractor's prices for products.
During this step, you should specify prices for all products that have Replenishment method = Subcontracting (which means the company often orders them from a subcontractor, so specifying a subcontractor's price is logical).

Registering purchase of raw ingredients

Now that all the data is in place, the next step is to create the supplier invoices that register the purchase of raw ingredients by Animal Feed Manufacturer.

It is possible to use a single supplier invoice for this purpose, but we will instead create two invoices that have different purchase prices for the same products. We will use them later to demonstrate how profit estimation changes when you apply different purchase prices.

To create the first invoice, go to Purchases > Supplier invoices and click Create. Then, enter the invoice details as on the screenshots below and click Post and close.

Note that this supplier invoice has a price type filled and Register supplier price checkbox selected. This means that purchase prices from this invoice are automatically copied to the supplier's price list.

If you want to check whether the invoiced items are actually added at your warehouses, use the Available stock report.

Next, create the second invoice, reflecting a purchase of the same product at a lower price.

Note that this supplier invoice has a blank price type and Register supplier price checkbox cleared. This means that purchase prices from this invoice are not automatically copied to the supplier's price list. This will be important later on.

You can now check the Available stock report again if you like. The report should show that all invoiced goods are at your warehouse.

Performing profit estimation

Now that all raw ingredients required for production are purchased, we can proceed with profit estimation.

First, you need to create a sales order for all products that Animal Feed Manufacturer intends to sell to Agricultural Customer.

To do this, go to Sales > Sales orders and click Create. Then, enter the order details as on the screenshots below and click Save and close.

The next step is to calculate the sale prices that will ensure your profit margin for each product.

Click Profit estimation. The profit estimation window contains a lot of information, but for now, two items are most important.

First, note the list of products from the sales order. This is where the profit estimation results (sale price, margin, and expected profit calculated for each product) are displayed.

Second, note the two error messages at the bottom, saying "Cannot determine the cost of subcontracting services". These errors have occurred because the profit estimation tool just attempted to calculate the prices of subcontracting services based on the latest purchase prices, and predictably failed. To fix the issue, set COGS calculation method for subcontracting services to Supplier's price list and select Ivar price type. This tells the profit estimation tool to use the subcontractor's price list instead of purchase price history.

As you can see, the errors are now gone and the prices are filled correctly. You can close the profit estimation window and return to the sales order. Now you know at what price to sell which product in order to reach the desired margin. Congratulations!

Customizing profit estimation

Now, let's see how you can further customize the profit estimation process.

First, if your sales order includes products manufactured in-house or by a third-party, you can fine-tune profit estimation by specifying whether each stage is performed by your company or a subcontractor.

The concept is best illustrated by a simple example. Open the profit estimation window again, and double-click Packaged feed mixture for poultry. You will see the entire production process broken down by stage, from bottom up. The drying stage is incorrectly marked as performed by a subcontractor; this is because the dried feed's default replenishment method is Subcontracting. Change it to Production and click Save and close to return to the sales order.

As you can see, the sale price for the poultry feed has dropped because drying the feed on your own is significantly cheaper for Animal Feed Manufacturer than paying the subcontractor.

Second, remember how you changed COGS calculation method for subcontractor's services? Your change has affected all products in the sales order. But in some situations, you might want to change COGS calculation method only for some products. Let's see how you can do it.

In the profit estimation window, click Settings and select In tabular section. Now, COGS calculation method has disappeared from the window header. Where has it gone?

Double-click any product name. As you can see, the production process breakdown now has a new column, named Calculation method. To change COGS calculation method for any production stage, double-click calculation method in that line.

Now you can have different COGS calculation methods for different production stages, making profit estimation even more accurate.

Note. To restore COGS calculation method as it was, just click Settings again and select In header.

Generating reports

As a final step, you can optionally use the Profit estimation report to review the sales order you've just created.

To do this, open the sales order and click Profit estimation in its link bar.

The report displays a summary of the profit estimation results for the order.

This concludes the tutorial. Thank you for your time!