Policy Note on Cost Calculation in Procuring Pharmaceuticals and Consumables - hmislk/hmis GitHub Wiki

1. Purpose

This note outlines the standard method of calculating costs in pharmaceutical and consumable procurement, ensuring accuracy, transparency, and compliance with hospital financial management practices.

2. Bill and Bill Items

Each purchase is documented in a Bill, which may contain multiple Bill Items.

  • Bill-level values: Discounts, taxes, and expenses that apply to the full bill.
  • Item-level values: Rates and totals that apply to individual items or packs.
  • Bill-level values are proportionally distributed across bill items, but not re-summed into the bill to avoid circular dependencies.

3. Bill-Level Financial Inputs

User inputs recorded at the Bill level include:

  • Bill Discount
  • Bill Tax
  • Bill Expenses included in costing (e.g., freight, insurance)
  • Bill Expenses not included in costing (e.g., administrative charges)

4. Bill-Level Calculated Values

  • Gross Total = Sum of Line Net Totals
  • Net Total = Gross Total + Bill Tax + Bill Expenses (included in costing) – Bill Discount

5. Item-Level Financial Inputs

Each Bill Item may be recorded in units (AMP) or packs (AMPP). Inputs include:

  • Quantity (Qty)
  • Free Quantity (additional free stock)
  • Purchase Rate (per unit or pack)
  • Line Discount Rate
  • Line Tax Rate
  • Line Expense Rate (e.g., freight, handling applied at line level)
  • Retail Rate (for sales)
  • Wholesale Rate (for bulk sales)

6. Item-Level Calculated Values

  • Line Gross Rate = Purchase Rate
  • Line Net Rate = Gross Rate + Tax – Discount
  • Line Cost Rate = Net Rate ÷ Quantity (always calculated per unit, with packs converted into units)

Totals:

  • Line Gross Total = Purchase Rate × Qty
  • Line Discount = Discount Rate × Qty
  • Line Tax = Tax Rate × Qty
  • Line Expense = Expense Rate × Qty
  • Line Net Total = Gross Total + Tax + Expense – Discount

7. Allocation of Bill-Level Values

Bill-level values are distributed across Bill Items proportionally to each item’s Line Net Total.

  • Free quantities are excluded from allocation (as overheads apply only to paid quantities).

Allocated values include:

  • Bill Discount Value
  • Bill Expense Value
  • Bill Tax Value

8. Final Totals for Each Item

  • Gross Total = Line Gross Total
  • Total Discount = Line Discount + Allocated Bill Discount
  • Total Tax = Line Tax + Allocated Bill Tax
  • Total Expense = Line Expense + Allocated Bill Expense
  • Net Total = Line Net Total + Allocated Bill Net Value

Corresponding per-unit rates are calculated by dividing these totals by the quantity.

9. Stock Valuation

  • Stock must always be valued at the Cost Rate, not Purchase Rate.

  • Free quantities are included when calculating cost per unit, as they dilute the effective unit cost.

  • Example:

    • Purchased: 1,000 units @ Rs. 10 each + 100 units free
    • Payment = Rs. 10,000
    • Stock = 1,100 units
    • True Cost Rate = 10,000 ÷ 1,100 = Rs. 9.09 per unit
    • Using Purchase Rate × Stock (1,100 × 10) would incorrectly value stock at Rs. 11,000.

10. Sign Conventions

  • Stock inflow = Positive quantity
  • Stock outflow = Negative quantity
  • Expenditure = Negative value
  • Income = Positive value

✅ This structure provides a clear and auditable costing framework, suitable for application in hospital pharmacies, stores, and finance divisions. It ensures that:

  • Procurement costs are correctly allocated,
  • Free stock is properly accounted for, and
  • Stock valuations remain accurate for decision-making, pricing, and reporting.