Define revenue prices
Define the revenue price
Item groups and released products can be set up by using either the median price method or the discount allocation method. Both methods require various settings on the Released products page:
- Is revenue allocation active – Set this option to Yes to include the released product in the revenue allocation calculation. If this option is set to No, the released product uses the median price method if the median price is defined. If the median price isn't defined, the unit price on the sales order line is used to post to revenue or deferred revenue.
- Revenue type – Select the revenue type that defines the released product:
- Essential – The item is a primary source of an organization's revenue. This value is the default setting.
- Nonessential – The item isn't a primary source of an organization's revenue. When the median price settings are used, the price is "carved out" to the median price and then allocated. For example, an essential item has a fixed price that must be recognized for revenue. If there is a discount, the discount might be carved out of the essential item revenue, but only up to the fixed price amount. The rest of the discount is taken out of the revenue for nonessential items. Alternatively, the discount might not be carved out of the essential item revenue.
- Post contract support (PCS) – The item supports other elements that are included in the sale to the customer. The revenue price is distributed across the essential and nonessential products that are included in the sale. Depending on setup, PCS items might not require that contract start and end dates be defined on the sales order line.
- Exclude from carve out – Set this option to Yes to indicate that the item's median price can't be adjusted below the minimum percentage that is defined or above the maximum percentage. Any revenue price will be derived from the revenue price of another released product that is included on the sales order. If this option is set to No, the item's median price can be adjusted or carved out. If you sell more than one item that is set up as median price, at least one released product must be set up where the Exclude from carve out option is set to No. Accordingly, there is at least one item that any differences in the revenue price can be allocated to.
- Median price – Set this option to Yes to indicate that the item's revenue price should be adjusted so that it equals the median price if it's below the minimum tolerance that you specify or above the maximum tolerance, and that the carve-out amount should be allocated to lines that have products where the Exclude from carve out option is set to No.
- Maximum tolerance – Enter the percentage over the median price that is permitted.
- Minimum tolerance – Enter the percentage under the median price that is permitted.
After you've finished configuring the settings for the released product, you must manually define the revenue price by entering the fair value price or the median price (if you're using median price method) on the Revenue prices page (go to Revenue recognition > Setup > Inventory setup > Released products and then, on the Action Pane, on the Sell tab, in the Revenue recognition group, select Revenue prices).
The revenue price that is manually defined on this page is used to determine the revenue price allocation on each sales order, based on the criteria that are defined. Each criterion is matched to the sales order line to determine the revenue price that should be used in the allocation process.
- Item code and Item relation – A revenue price can be defined for an individual product or a group of products. If you select Table in the Item code field, select the released product in the Item relation field. If you select Group in the Item code field, select the item group in the Item relation field.
- Account code and Account/Group number – A revenue price can be defined for all customers, an individual customer, or a group of customers. If you select All in the Account code field, the price is used for all customers. If you select Table in the Account code field, select the customer in the Account/Group number field. If you select Group in the Account code field, select the customer group in the Account/Group number field.
- Currency – You must enter a separate revenue price for each currency that you enter a sales order in. For example, if you currently sell in US dollars, Canadian dollars, and euros, you must define a revenue price in all three currencies. The revenue price isn't translated from one currency, such as the accounting currency, to any other transaction currencies that you're using.
- Amount or percent of list – Specify whether the revenue price is set up as an amount or as a percentage of the list price. If you select Percent of list, users can enter the median price as a percentage of the list price instead of an amount. The Percent of list value is used only for released products that are set up as PCS items.
- Revenue allocation price – Depending on the value that you selected in the Amount or percent of list field, enter either an amount or a percentage to represent the revenue price that is used to allocate the revenue across the elements on the sales order.
- From date and To date – Enter the date range that the revenue price is active for. These fields are optional.
If the Enable discount allocation method option on the General ledger parameters page is set to Yes, and if the Revenue type field for your released product is set to Post contract support, you must also specify the items that are being supported by the released product. This setup is done on the Setup basis page (go to Revenue recognition > Setup > Inventory setup > Released products and then, on the Action Pane, on the Sell tab, in the Revenue recognition group, select Setup basis).
On the Setup basis page, add a record for each item group that the item is supporting. When the revenue allocation occurs, the revenue price will be distributed across the essential and nonessential parts for the PCS item.