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Oracle Application

User Reference Manual

Cost Management

KPIT Cummins Infosystems Limited


Plot No. 35/36, Rajiv Gandhi Infotech Park, Phase I, MIDC, Hinjewadi, PUNE-41105
7, India
Tel: +91 20 5652 5000, Fax: +91 20 5652 5001
www.kpitcummins.com

Table of Contents

1. Introduction 3
i. Important Key Features 3
ii. Key concepts 5
iii. Item Cost Definition 6
iv. Standard Costing 9
v. Average Costing 10
vi. Comparison of Standard and Average Costing 11
2. Basic Functionalities of the module 12
i. Defining Item Costs 12
ii. Viewing Item Costs 12
iii. Mass Editing Costing Information 12
iv. Supply Chain Costing 12
v. Period Close Activity 12
vi. View Transactions 12
vii. Reports 12
viii. Case Study – Standard Costing 13
3. Advanced / other features of the module 37
i. Retroactive Pricing 37
ii. Transfer Price Costing 38
iii. Client Extensions 39
iv. Account Generation Extension Workflow 40
v. View Transactions 41
4. Important Set Ups 42
a) Setups Related to Other Modules 42
b) Setups Related to Cost Management 43
i. Set Personal Profile Options 45
ii. Set Security Functions 48
iii. Define Cost Types 49
iv. Defining Activities and Activity Costs 50
v. Define Cost Groups 51
vi. Define Material Sub-elements 52
vii. Define Overheads 53
viii. Define Material Overhead Defaults 54
ix. Associate Expenditure Types with Cost Elements 55
x. Define Category Accounts (Optional) 56
5. Inter Module Dependencies 58
6. Seeded technical objects 59
7. Periodic Actions, Reconciliations etc. 60
8. Accounting Entries 61

1. Introduction
Oracle Cost Management is a comprehensive solution that helps organizations defi
ne costs then performs cost accounting for supply chain transactions. These acti
vities serve as a key component for complying with regulatory reporting and acco
unting requirements, for streamlining the use of working capital in organization
s, and improved profitability for businesses.
i. Important Key Features
It is a cost system for Inventory, Order Management, Purchasing and Work in Proc
ess transactions. Cost Management supports various transaction costing, comprehe
nsive valuation and variance reporting and thorough integration with Oracle Fina
ncials.
The overview of Oracle Cost Management with the other functional modules can be
represented as below:

It provides flexible Item Cost setup features including multiple cost elements a
nd infinite sub-elements for each element. System defined cost elements are Mate
rial, Resource, Overhead, Material Overhead and Outside Processing. All these el
ements can have multiple Sub-elements help to analyze costs in greater details.
This helps to accurately identify and maintain costs and associate them with ite
ms.
It enables extensive cost simulation capabilities that help to define costs. It
also supports flexible period based accounting that enables you to transact in m
ore than one open period at the same time. You can simultaneously reconcile and
analyze one open period while conducting business in subsequent open period. Als
o you can transfer summary of detail account activity to Oracle General Ledger a
t any time and close the period at any time.
It provides flexible account setup such as accounts by Organization, Sub-Invento
ry, WIP accounting class such that total item cost can be distributed to right e
xpense accounts and capture valuation in proper asset accounts.
It Supports following types of Costing Methods:
i. Standard Costing
ii. Average Costing
iii. LIFO Costing
iv. FIFO Costing
v. Periodic Average Costing
vi. Activity based Costing
As per the scope of this document we will be considering details of only Standar
d and Average Costing Methods.
It can be broadly categorized based on functional criteria as:
a. Product Costing
Rollup costs for bills and routings
Report and view assembly costs by level
Rollup costs based on Levels, Cost Type
Rollup costs using alternate bills and routings
Use Mass Edits to easily maintain costs and accounts
Copy Costs across cost types or organizations
Update costs at any time to revalue inventory and WIP
b. Inventory Costing
Maintain perpetual inventory costs
Create inventory transaction accounting entries
Track Asset and Expense items and locations
Use Rule based accounting for Revenue and COGS
c. Manufacturing Costing
Maintain perpetual balances, discrete jobs and schedules
Charge resources at actual or standard cost including OSP
Charge resource cost based on operation completion
Apply overheads by fixed amount per Item / Lot, Percent of Item / Resource Value
and Amount per resource unit.

ii. Key concepts


Costing Organization:
When we define an inventory organization, we can specify both an Item Master Org
anization and a costing Organization.
Child organization of the costing organization can share the costs of the costin
g master organization if they are all using Standard Costing and are not manufac
turing plants(i.e. are not WIP-enabled).
The costing master organization can be a manufacturing plant.
Items in each of these organizations will be stored at the same cost, provided t
hey have the “Costing Enabled” and “Inventory Asset Value” attributes controlled at the
item level rather than the Item Organization Level.
Organizations using Average costing cannot share costs.
Cost Group:
A cost group is a set of accounts that hold on hand inventory. Prior to cost gro
ups, sub-inventories were utilized to hold the accounts. The physical and accoun
ting attributes are used in the sub-inventories to track the location, quantity,
and value of the inventory.
Cost groups were introduced to create separate tracking of the physical and acco
unting aspects of inventory.
Some of the benefits of using a cost group are:
• Tracking quantity account and quantity movement characteristics
• Maintain multiple item costs in each organization when using a perpetual costing
method (Average, FIFO, and LIFO). Distinct cost is maintained for each item/cos
t group combination.
• In standard costing, all inventory of an item carries only the standard cost reg
ardless of cost groups being utilized.
• Eliminate the need for accounting changes for sub-inventory transfers. Sub-inven
tory transfers are pure physical moves when using the cost group functionality.
If the current organization is not Project References Enabled, the Common cost g
roup is defaulted and cannot be updated. If the organization is Project Referenc
e Enabled, any cost group can be selected.
The Common cost group is seeded when Cost Management is installed.
The valuation accounts defined in the Organization Parameters window are used fo
r this cost group and cannot be changed or made inactive. However, in an organiz
ation that is Project Cost Collection Enabled the name and description of this c
ost group can be changed.
Since Warehouse Management / Inventory Patch set B, there is new functionality w
ith regard to cost groups. Each time a new organization is created, a new cost g
roup is also created for that organization.
The same Cost Group is associated with all the Sub-inventories in the Org. Howev
er, this could be overridden at the sub-inventory level.
Cost Type:
A cost type is a set of costs uniquely identified by name. In Standard Costing m
ethod, ‘Frozen’ is the seeded cost type. An unlimited number of additional simulatio
n or unimplemented cost types can be defined and updated.
iii. Item Cost Definition
Product costs are the sum of their elemental costs.
The data model the supports item costs is illustrated below:
Cost Elements –
Product costs are the sum of their elemental costs. Basic 5 Cost elements are li
sted as follows:
a. Material b. Material Overhead
c. Resource d. Overhead
e. Out-side Processing
Cost Sub-Elements –
You can use sub-elements as smaller classifications of the cost elements. Each c
ost element must be associated with one or more sub-elements. Define sub-element
s for each cost element and assign a rate or amount to each one. You can define
as many sub-elements as needed.
Basis Type –
Basis types determine how costs are assigned to the item. Basis types are assign
ed to sub-elements, which are then assigned to the item. Each sub-element must h
ave a basis type. Examples: one hour of outside processing per basis item, two q
uarts of material per basis lot.
Basis types are assigned to sub-elements in three windows and, for the overhead
sub-element, a setting established in one window may not always be applicable in
another. (This refers specifically to the overhead sub-element, not the materia
l overhead sub-element.)
Basis types in Sub-element and Routing Windows
Basis types assigned to sub-elements in sub-element and routing windows are the
defaults for the purpose of routing. Basis types Resource Units and Resource Val
ue, when assigned to an overhead sub-element (Routing only in the table below),
are available to flow through to routing, but are not available in the Item Cost
window.
Basis types in the Item Cost window
When you are defining item costs, for any overhead sub-element with a previously
assigned basis of Resource Units or Resource Value, that basis is ignored, and
only item or lot appears in the basis pop–up window. This does not change the assi
gned basis for the purpose of routing.

Element Element Details Sub-element Details


Material
(Raw material cost of all components) The raw material / component cost at the
lowest level of the bill of material determined from the unit cost of the compo
nent item. Material costs can be broken down to further classify the materi
al cost content.
Material Overhead
(Any costs attributed to direct material costs.) The overhead cost of mat
erial, calculated as a percentage of the total cost, or as a fixed charge per it
em, lot, or activity. If you use Work in Process, you can also apply material ov
erhead at the assembly level using a variety of allocation charge methods.
Appropriate rate or amount, such as purchasing, freight, duty, or material handl
ing can be considered as Material Overhead Sub-element.
Resource
(Direct costs, such as labor, machines, space, or miscellaneous charges, require
d for manufacturing products.) Direct costs, such as labor, machines, space, or
miscellaneous charges, required to make products. Resources can be calculated a
s standard resource rate times the standard units on the routing, per operation,
or as a fixed charge per item or lot passing through an operation.
Each resource you associate to routing of the Item is considered as a su
b-element which can be set up to charge actual or standard costs and may generat
e a rate variance when charged.
Overhead
(The overhead cost of resource and OSP, which is used as means to allocate depar
tment costs)
Overhead is used as a means to allocate costs of department or activitie
s. E.g. you can define multiple overhead sub-elements to cover both fixed and va
riable overhead, each with its own rate. You can assign multiple overhead sub-el
ements to a single department, and vice versa.
Overhead sub-elements are applied in the routing and usually represent p
roduction overhead. These add indirect costs to Item.
Outside Processing
(This is the cost of outside processing purchased from a supplier)
Outside processing may be a fixed charge per item or lot processed, a fi
xed amount per OSP resource unit, or the standard resource rate times the standa
rd units on the routing operation. To implement outside processing costs, you mu
st define a routing operation, and use an outside processing resource. OSP sub-
element represents service provided by suppliers. Each outside processing resour
ce you define is a sub-element, may be set up to charge actual or standard costs
, and may generate a purchase price variance when charged
Basis Types –
Basis types determine how costs are assigned to the item. Basis types are assign
ed to each sub-element, which are then assigned to the item.
Basis Type Details of Basis Type
Item
(All Sub-elements) Used with Material and MOH sub-elements to assign a fixe
d amount per item completed or received.
Used with Resource, Overhead and OSP sub-elements to charge a fixed amount per i
tem moved through an operation.
Lot
(All Sub-elements) Used to assign a fixed lot charge to items or operations
. The cost per item is calculated by dividing the fixed cost by the item’s standar
d lot size for material and MOH sub-elements.
For routing the cost per item is calculated by dividing the fixed cost by the st
andard lot quantity moved through operation associated with Resource, OSP or Ove
rhead sub-element.
Resource Units
(Overhead & Material Overhead) Used to allocate overhead to an item, based on t
he number of resource units earned in the routing operation. Used with the overh
ead sub-element only. The overhead calculation is based on resource units:
(resource units earned in an operation
* overhead rate or amount)
You may optionally use resource units and resource value to earn material overhe
ad when you complete units from a job or repetitive schedule.
Resource Value
(Overhead & Material Overhead) Used to apply overhead to an item, based on the
resource value earned in the routing operation. Used with the overhead sub-eleme
nt only and usually expressed as a rate. The overhead calculation is based on re
source value:
(resource value earned in the operation * overhead rate)
Total Value
(Material Overhead) Used to assign material overhead to an item, based on th
e total value of the item. Used with the material overhead sub-element only. Mat
erial overhead calculation is based on total value.
Activity
(Material Overhead) Used to directly assign the activity cost to an item. Us
ed with the material overhead sub-element only. The material overhead calculatio
n is based on activity
(activity occurrences / # of items X activity rate)
iv. Standard Costing
Use standard costing for performance measurement and cost control.
Manufacturing industries typically use standard costing.
Under standard costing, predetermined costs are used for valuing inventory and f
or charging material, resource, overhead, period close, and job close and schedu
le complete transactions. Differences between standard costs and actual costs ar
e recorded as variances.
Standard costing enables you to:
• establish and maintain standard costs
• define cost elements for product costing
• value inventory and work in process balances
• perform extensive cost simulations using unlimited cost types
• determine profit margin using expected product costs
• update standard costs from any cost type
• revalue on–hand inventories, in transit inventory, and discrete work in process jo
bs when updating costs
• record variances against expected product costs
• measure your organization’s performance based on predefined product costs
If you use Inventory without Work in Process, you can define your item costs onc
e for each item (in the cost master organization) and share those costs with oth
er organizations. If you share standard costs across multiple organizations, all
reports, inquiries, and processes use those costs. You are not required to ente
r duplicate costs.
The cost master organization can be a manufacturing organization that uses Work
in Process or Bills of Material. No organization sharing costs with the cost mas
ter organization can use Bills of Material.
v. Average Costing
Average costing is used primarily for distribution and other industries where th
e product cost fluctuates rapidly, or when dictated by regulation and other indu
stry conventions. Average costing eliminates the need to set standards.
Under average cost systems, the unit cost of an item is the average value of all
receipts of that item to inventory, on a per unit basis. Each receipt of materi
al to inventory updates the unit cost of the item received. Issues from inventor
y use the current average cost as the unit cost.
By using Oracle Cost Management’s average costing method, you can perpetually valu
e inventory at an average cost, weighted by quantity
(Inventory cost = average unit cost * quantity).
For purchased items, this is a weighted average of the actual procurement cost o
f an item. For manufactured items, this is a weighted average of the cost of all
resources and materials consumed. Note: Weighted average costing cannot be appl
ied to repetitively manufactured items. Therefore, you cannot define repetitive
schedules in an organization that is defined as a manufacturing average cost org
anization.
This same average cost is used to value transactions. You can reconcile inventor
y and work in process balances to your accounting entries. Note: Under average c
osting, you cannot share costs; average costs are maintained separately in each
inventory organization.
Average costing enables you to:
• approximate actual material costs
• value inventory and transact at average cost
• maintain average costs
• automatically interface with your general ledger
• reconcile inventory balances with general ledger
• analyze profit margins using an actual cost method
Inventory allows negative on–hand quantity balances without adversely affecting av
erage costs.
vi. Comparison of Standard and Average Costing
Average Costing Standard Costing
Material with Inventory; all cost elements with Bills of Material Material
and material overhead with Inventory; all cost elements with Bills of Material
Item costs held by cost element Item costs held by cost sub-element
No shared costs; average cost is maintained separately in each organization
Can share costs across child organizations when not using Work in Process
Maintains the average unit cost with each transaction Moving average cost is n
ot maintained
Separate valuation accounts for each cost group and cost element Separate
valuation accounts for each sub-inventory and cost element
Little or No variances for Work in Process Transactions Variances for Work in Pr
ocess transactions
Any error occurring during the cost processing of a transaction flags the transa
ction as error. The cost processing of other transactions continues.
Any error during the cost processing of a transaction for a particular o
rganization flags the transaction as error and prevents the cost processing of o
ther transactions in that particular organization. Failed cost updates can be re
submitted just like other errors.

Changing from Standard to Average Costing:


You cannot change the costing method of an organization once transactions have b
een performed.
The only safe way to change a costing method is to create a new organization and
effectively start again by transferring all the stock and orders. Anything else
requires SQL and runs the danger of corrupting the database.
Please refer to following Oracle Metalink Notes for detailed checklist of action
s to be performed while changing the Costing Method from Standard to Average.
Note
331805.1 - How to Change from Standard Costing to Average Costing
125857.1 - Changing From Standard to Average Cost Organization(s)
2. Basic Functionalities of the module
i. Defining Item Costs
ii. Viewing Item Costs
iii. Mass Editing Costing Information
iv. Supply Chain Costing
v. Period Close Activity
vi. View Transactions
vii. Reports

viii. Case Study – Standard Costing


This case study is divided into 3 sections.
Section 1: SETUP
==============
In this section, let us try to understand the setup that serves as a foundation
to present the test cases.
Bill of Material (BOM)
The following BOM would be used in understanding the Cost rollup process.

As shown in the above screenshot, BOM of ORA1 comprises 3 Purchased items and 1
Subassembly.
O1, R1 and A1 are the purchased items.
RA1 is the sub-assembly.
Yield of component R1 is specified as 0.8, in the Component Details Tab of Bills
of Material screen. This means to say that for every 1 unit of R1 used in the m
aking of RA1, 0.8 units would effectively get utilized and the remaining 0.2 uni
ts would go unutilized or waste. So, in order to see that 1 unit of RA1 effectiv
ely gets utilized; 1/0.8 or 1.125 units should actually be used.
The yield of A1 is set to 1.
Fig 2. Bill of Material of RA1 displaying the yield of components
Similarly, the yield of sub-assembly RA1 is set to 0.7 in the BOM of ORA1.
However, the yield of O1 is set to 1.
Fig 3. Bill of Material of ORA1 displaying the yield of components

Resources
3 Resources have been defined under 3 different Departments. DSR1, DSR2 and DSR3
are the 3 Departments defined. The Resources defined are LAM, FIX and SAW. Reso
urce ‘LAM’ used for Lamination purpose is defined under Department DSR1 Unit cost of
this Resource is defined as $12.
The Navigation Path used for defining the Resource Unit Cost is as follows:
Bills of Material -> Routings -> Resources -> Rates (B)

Fig 4. Resource Cost of LAM


Resource FIX used for fixing purpose is defined under Department DSR2. Unit Cost
of Resource FIX is $16.

Fig 5. Resource Cost of FIX


Resource SAW is used for sawing. It is defined under Department DSR3 with a unit
cost of $20.

Fig 6. Resource Cost of SAW


ROUTINGS
Routings are defined for both RA1 and ORA1.
Routing for RA1 has got 2 operations – 10 and 20.
Resource LAM is attached to operation 10 and Resource FIX is attached to operati
on 20.
Item R1 is worked upon in operation 10 and A1 is worked upon in operation 20 usi
ng the respective Resources attached.
Usage of both the resources is set to 1.
Fig 7. Routing for RA1
Routing for ORA1 has 2 operations defined – 10 and 20.
Resources SAW and FIX are attached to operations 10 and 20 respectively.
Item O1 is worked upon in operation 10 and RA1 in operation 20.
Usage of Resource SAW is set to 0.9 and that of Resource FIX is set to 1.
Fig 8. Routing for ORA1
Overheads
There are 2 overheads defined in the form of ‘Mgmt’ and ‘MfgMgmt’. Hence, these overhead
s have been associated with the required Departments and Cost type ‘Pending’. We wou
ld be using the Pending Cost type for our test case involving Cost Rollup.
Note:- Overheads operate at the Department Level and need to be associated with
a cost type. Overhead Mgmt has been associated with Departments DSR1 and DSR2 wi
th a rate of 9 and it uses a basis type of ‘Resource Value’.
The Navigation used is as follows:
Cost -> Setup -> Subelements -> Overheads -> Rates (B)

Fig 9. Association of Overhead Mgmt with Pending Cost Type and Departments DSR1
and DSR2
The same can be achieved using the following Navigation too:
Bills of Material -> Routings -> Resources -> Rates (B)
As shown above, a 3-way association among the Overhead ‘Mgmt’, ‘Pending’ Cost type, and
Departments – DSR1 and DSR2 is complete.
However, in order to charge the overhead based on specific resources within the
Department, there needs to be an association between the Overhead and the specif
ic Resource within the Department.
To satisfy this condition, Overhead ‘Mgmt’ has been associated with Resources LAM an
d FIX within Departments DSR1 and DSR2 respectively.
The Navigation used is as follows:
Cost -> Setup -> Subelements -> Overheads -> Resources (B)
Fig 10. Association of Overhead Mgmt with Resources FIX and LAM for Pending Cost
type
The same can be achieved for each resource using following Navigation too:
Bills of Material -> Routings -> Resources -> Overheads (B)
Similarly overhead MfgMgmt has been associated with Department DSR3 and Pending
Cost type with a rate of 7 using basis type ‘Resource Unit’. This Overhead has speci
fically been attached to Resource SAW within Department DSR3.

Fig 11. Association among Department DSR3, Pending Cost type and Overhead MfgMgm
t

Fig 12. Association between Overhead MfgMgmt and specific resource SAW within De
partment DSR3
Item costs
All the 5 items, namely O1, R1, A1, RA1 and ORA1 have costs defined.
These are supported with screenshots and would be introduced one after the other
in the course of the discussion, as and when required.
Section 2 – Item Cost Calculations
============================
Section 2 would look at the Cost rollup process for the Finished Good ORA1 in an
Organization employing the Standard Cost method.
COST ROLLUP
As we start the exercise of understanding the rolled up costs, we must be remind
ed of the following:
1) A yield factor of 0.8 has been set against R1 in the BOM of RA1.
This means to say that for every 1 unit of R1 used, there would be wastage of 0.
2 units in the process of making RA1.
2) A yield of 0.7 has been set against RA1 in the BOM of ORA1.
3) Usage rate of Resource SAW has been set to 0.9 in the routing for ORA1.
As we go forward, we would understand the implications of the above settings.
Purchased Item A1
---------------------------
Let us begin our understanding from the buy item A1.
Material Cost of Item A1 has been defined as $12 with a basis type of Item.
Material Overhead Cost has been defined with a basis type of Total Value and a r
ate of 0.3.This means that the Material Overhead value would be 0.3 times the ex
isting total value of item A1.
This results in a value of $3.6 i.e. 0.3 * $12

Fig.13. Item Costs of A1


Let us look at the output of the Cost Rollup Report, which is the Bills of Mater
ial Indented Cost Report. The yield factor of 0.7 set against RA1 would come int
o play now. This means that for every 1 unit of RA1 used in the making of ORA1,
0.7 units would effectively get utilized and the remaining 0.3 units would go un
utilized or waste. So in order to see that 1 unit of RA1 effectively gets utiliz
ed; 1/0.7 or 1.428 units should be used.
This value would get percolated to next level of BOM too i.e. to R1 and A1.
Cost computations would also get carried out accordingly.
Fig 14. Bills of Material Indented Cost Report Output for Item A1
The ‘Extended Qty/ Rate or Amount’ Column shows a value of 1.428571 against item A1
which is due to the yield factor of 0.7 set against the sub-assembly in the maki
ng, RA1.
The Material cost of A1 would get multiplied by this value to provide the extend
ed cost as $17.14286 i.e. $12 * 1.428571 = $17.14286.
The Material Overhead Cost has a rate of 0.3 defined using ‘Total Value’ as Basis ty
pe.
This data is represented by ‘Quantity/Rate or Amount’ and ‘Yield/Basis’ columns respecti
vely against the Cost Element of Material Overhead.
As understood earlier, when a basis type of ‘Total Value’ is used, the existing tota
l value of the item would multiply the rate. This leads us to the product of 0.3
and $17.14286, which is the existing total value of the item A1 resulting from
the rollup.
Hence a value of $5.14286 is seen as extended cost of Material Overhead.
Material Cost = $12 * 1.428571 = $17.14286
Material Overhead Cost = $3.6 * 17.14286 = $5.14286
The column ‘Item Unit Cost/Res Unit Cost’ displays a value of $15.6 based on the Ite
m Costs screen. This is only a representative value and is not used in the cost
rollup.
Purchased Item R1
---------------------------
Material Cost of R1 has been defined as $10 and the Material Overhead Cost as $2
. Both these costs use a basis type of Item.
Fig.15. Item Costs of R1
The computations pertaining to this item for the cost rollup have been made a bi
t more complex with the inclusion of a yield factor of 0.8 against this item in
the BOM of RA1.
While rolling up costs associated with R1, system would look at both the yield f
actors i.e. 0.7 of RA1 and 0.8 of R1.

Fig 16. Bills of Material Indented Cost Report Output for Item R1
The ‘Extended Qty/ Rate or Amount’ Column shows a value of 1.785714 which is derived
as follows:

This value directly multiplies the Material and Material Overhead costs as they
use a basis type of Item, resulting in values of $17.85714 and $3.57143 in the e
xtended cost column against the Material and Material Overhead cost elements res
pectively.
Material Cost = $10 * 1.785714 = $17.85714
Material Overhead Cost = $2 * 1.785714 = $3.57143
Sub-assembly RA1
---------------------------
As we have understood the rolled up costs derived with respect to the buy items
R1 and A1, we now move to sub-assembly RA1.
A Material Overhead Cost of $4 was defined for sub-assembly RA1 before the rollu
p was carried out. Please note that there was no Material Cost defined.

Fig.17. Item Costs of RA1


As Resources and Overheads are expended in making the sub-assembly RA1, the roll
ed up costs would include the same along with the Material Overhead cost defined
initially.

Fig 18. Bills of Material Indented Cost Report Output for Item R1
Let us take the cost elements one by one and understand the costs.
The ‘Extended Qty/ Rate or Amount’ Column shows a value of 1.428571 against item RA1
which
is due to the yield factor of 0.7 set against RA1 in the BOM of ORA1.
The Material Overhead of $4 gets multiplied by this value to result in an extend
ed cost of $5.71429.
The Cost Element of Resource has got 2 sub-elements in the form of Resources LAM
and FIX under Departments DSR1 and DSR2 respectively with a basis type of item.
The unit cost of Resource LAM is $12 as shown in Fig.4.
The unit cost of Resource FIX is $16 as shown in Fig. 5.
These costs once again get multiplied by 1.428571 to result in extended costs of
$17.14286 and $22.85714 respectively.
The final cost element that needs to be accounted is overhead.
Overhead ‘Mgmt’ has been attached to Cost type ‘Pending’ with a rate of 9 and a basis ty
pe of Resource Value as shown in Fig. 9
A basis type of Resource Value means that the Rate defined against this Overhead
would get multiplied by the Value of Resource used. A prerequisite for this to
happen is that the Overhead should be attached to the specific Resource.
To satisfy this condition, the Overhead ‘Mgmt’ has been attached to Resources LAM an
d FIX as shown in Fig.10.
Hence, the cost of Overheads is calculated by multiplying the rate of 9 with the
extended cost of the Resources, LAM and FIX. This results in values of $154.285
71 and $205.71429 in the extended cost column against the Overhead ‘Mgmt’.
Material Overhead Cost = $4 * 1.428571 = 5.71429.
Resource Costs
--- LAM = $12 * 1.428571 = 17.14286
--- FIX = $16 * 1.428571 = 22.85714
Overhead Costs
--- Mgmt (based on Resource Value of LAM) = 9 * $17.14286 = $154.28571
--- Mgmt (based on Resource Value of FIX) = 9 * $22.85714 = $205.71429
The Value of $314.6 in the ‘Item Unit Cost/Res Unit Cost’ Column against RA1 is the
rolled up cost of sub-assembly RA1. This means to say that, if a rollup were car
ried out for RA1 only and not ORA1, the rolled up cost of RA1 would have been $3
14.6.
This is essentially computed without considering the yield factor of 0.7 defined
against RA1 in the BOM of ORA1. However, the yield factor of 0.8 defined for Bu
y item R1 would be considered in this computation as this item forms a part of t
he BOM of RA1.
Purchased Item O1
---------------------------
This should be the simplest of all. RA1 has a Material Cost of $18 and a Materia
l Overhead Cost of $7 defined with a basis type of ‘Item’.
Fig.19. Item Costs of O1
For a change, there is no yield factor linked to this item.
Hence, the costs defined would directly get considered for roll up.

Fig 20. Bills of Material Indented Cost Report Output for Item O1
Material Cost = $18
Material Overhead Cost = $7
Finished Good ORA1
------------------------------
Finally, we get to the Finished Good Item ORA1.
ORA1 has got a Material Cost of $5 with basis type ‘Item’.
The Material Overhead Cost has a rate of 2 with a basis type of ‘Resource Unit’.
This means to say that the Resource Units used in making ORA1 would multiply the
Rate. As noted earlier, usage of Resource SAW is set to 0.9 and that of FIX is
set to the not so interesting value of 1.
Hence, a total of 1.9 resource units are used.
This value gets multiplied with the rate of 2 and results in a value of $3.8.

Fig.21. Item Costs of O1

Fig 22. Bills of Material Indented Cost Report Output for Item O1
As in the case of RA1, let us take each cost element and check for the Cost arri
ved at.
Material Cost element has an extended cost of $5, which is picked up from the It
em Costs screen. Similarly the Material Overhead Cost of $3.8 gets picked up.
Resource Cost element has 2 resources SAW and FIX as sub-elements.
Resource FIX has a unit cost of 16 as shown in Fig.5
Hence this cost is picked for the roll up.
Resource SAW has a unit cost of 20 as shown in Fig.6.
However SAW has a usage of 0.9 in the Routing for ORA1 as represented by Fig.8.
Hence the extended cost would get calculated as 0.9 * 20 resulting in $18.
The next Cost element to be considered is overhead.
There are 2 sub-elements under this cost element in the form of MfgMgmt and Mgmt
.
As shown earlier, Mgmt has a rate of 9 defined with a basis type of Resource Val
ue and it has been associated with Resource FIX. (Figs. 9 & 10)
Also, MfgMgmt has a Rate of 7 defined with a basis type of Resource Unit and has
been attached to the Resource SAW under Cost type Pending for the Resource Unit
basis type to be effective. (Figs. 11 & 12)
Hence the cost of sub-element Mgmt is calculated by multiplying the rate of 9 wi
th the Resource Value of $16 resulting in $144.
The cost of sub-element MfgMgmt is calculated by multiplying the rate of 7 with
the Resource unit value of $0.9 resulting in $6.3.
Material Cost = $5
Material Overhead Cost = $2 * 1.9 = $3.8
Resource Costs
--- SAW = $20 * 0.9 = $18
--- FIX = $16
Overhead Costs
--- MfgMgmt = $7 * 0.9 = $6.3
--- Mgmt = $16 * 9 = $144
A summation of all the extended costs discussed above results in the rolled up c
ost of ORA1, which is $667.52857.
Shrinkage Rate
This case could have been made more interesting by bringing ‘Shrinkage Rate’ into pi
cture. Enter the manufacturing shrinkage rate as 0.2 for the Finished Good ‘ORA1’.
This can be done using the following Navigation:
Cost -> Item Costs -> Item Costs -> Item Costs Summary -> Item Costs Details.
Fig 23. Shrinkage Rate of ORA1
Cost rollup uses the value entered here to determine the incremental component r
equirements due to the assembly shrinkage of the current item.
Shrinkage Rate cannot be entered for items that do not base costs on a rollup of
the item’s bill of material and routing (buy items).
Note:- This value is different from the ‘Shrinkage Rate’ entered in the MPS/ MRP Pla
nning Tab of the item Master. Shrinkage Rate is considered for planning purposes
by MRP / MPS.
Let us now understand the implication of this MFG Shrinkage Rate.
All the costs displayed in the ‘extended cost’ column of the earlier Indented Bill o
f Material Report would get multiplied by the following factor:
1 / (1 – manufacturing shrinkage)
Hence the final cost of ORA1 would become:
$667.52857 * 1/(1-0.2) = $834.411
Cost Update
As understood earlier, Standard Costing uses the cost of an item that exists in
the ‘Frozen’ cost type only for accounting all transactions pertaining to the Organi
zation. Hence, the rolled up cost in Pending cost type needs to be updated to Fr
ozen Cost type.
This is accomplished by running the ‘Update Standard Costs’ concurrent request.
The Navigation used for this purpose is as follows:
Cost -> Item Costs -> Standard Cost Update -> Update Costs.
The standard cost update procedure enables users to define and roll up pending c
osts, simulate changes to standard costs for “what if” analysis and then update pend
ing costs to the frozen standard cost type.
It is advisable to run cost update at the beginning of the inventory accounting
period before transactions have started for the new period. At this juncture, it
would be apt to introduce a new feature, Cost Cut-Off Date
Cost Cutoff Date
------------------------
This functionality is developed to allow businesses the option of changing labor
rates and overhead rates at the beginning of the accounting period while transa
ctions in the next period wait for these new costs to be completed. This feature
exists for all the perpetual costing methods available in Release 11i: Standard
, Average, FIFO and LIFO. This will allow period close, cost updates and rate ch
anges to occur without impacting or interrupting business operations.
When using the Cost Cutoff Date, all cost processing for the new accounting peri
od is stopped for that organization. This provides accountants with the opportun
ity of closing the previous period.
Once the new costs are set, then the costing is started for the new period. This
occurs by changing the cost cutoff date to a date in the future.
To use this functionality, the Cost Cutoff Date field must be populated with a d
ate in the Organization Parameters form.
The Navigation Path is as follows:
Inventory -> Setup->Organizations -> Parameters -> Costing Information (T)
With this new functionality, the Standard Cost Update can now run in one organiz
ation while other organizations are still costing transactions. Standard Cost Wo
rkers are launched based on organization, so this improves the speed of costing
transactions.
Example
-------------
Let us understand the functionality of this feature with the help of an example.
Assume December 2003 and January 2004 to be 2 accounting periods respectively.
Suppose the cost cut-off date is set to 01-01-2004. New standard costs can be es
tablished prior
to 01-01-2004, say in December 2003. These costs will not impact the December co
sting activities, as they will not be active until January 1, 2004. Also, no tra
nsactions that occur from January 1, 2004 are having cost. This will allow the a
ccountants to complete the costing for the December transactions, close the peri
od, and run the reports for review.
Now, a standard cost update can be performed using the new cost type for January
2004.This will update the cost of the costed items up to December 31, 2003. The
reports can then be rerun with the same quantity and newly updated costs. Even
at this stage, January 2004 transactions would not be costed. Costing in the new
period would not happen till the costing of the previous period is finished. Th
e uncosted transactions will remain in the
18 MTL_MATERIAL_TRANSACTIONS with costed_flag = N waiting for a cost worker to p
rocess them. The Cost Manager will spawn no cost worker until the Cutoff Date is
changed.
To cost the January 2004 transactions once period of December 2003 is properly c
losed, the Cost Cutoff Date is changed. This can be changed to the start of the
next period or next quarter or next year --- whenever the rates need to be chang
ed next. Once changed, the cost processing begins for the transactions that have
been waiting.
For standard costs, the processing of the transactions is immediate. For Average
, FIFO, and LIFO costing the process takes longer because of the need to process
the transactions sequentially to keep the costs accurate.
As part of our test case, Standard Cost Update has been run for all the 5 items.
Hence, costs of these items are now available for the system to consider them fo
r all further transactions and their subsequent accounting.
Section 3 - Transaction Costing
==========================
In Section 3, focus is laid on the behavior of Standard Costing method on some b
asic transactions across 4 different modules of Oracle Applications, namely Orac
le Purchasing, Oracle Inventory, Oracle Work in Process and Oracle Order Managem
ent.
A business requirement of manufacturing and shipping sub-assembly RA1 is assumed
.
A voluntary choice of RA1, instead of ORA1, has been made in order to maintain t
he complexity of transactions at a minimum level and also to aid a quicker and b
etter understanding of the accounting distributions generated by the system.
The series of transactions followed for manufacturing and shipping of RA1 is as
follows:
1) Purchase Order transaction for receiving 10 quantities of Purchased item A1 i
nto sub-inventory SUB2.
2) A ‘Return to Vendor’ transaction of 2 faulty quantities of A1 from SUB2 to Vendor
.
3) Miscellaneous Receipt transaction for receiving 10 quantities of purchased it
em R1 into sub-inventory SUB1.
4) Sub-inventory transfer transaction for transferring 8 quantities of R1 from s
ub-inventory SUB1 to sub-inventory SUB2.
5) WIP Completion of 3 quantities of sub-assembly RA1 into sub-inventory SUB3 by
sourcing components R1 and A1 from sub-inventory SUB2.
6) WIP Assembly Scrap transactions of 1 quantity each of RA1 at Operation 10 and
Operation 20 respectively.
7) Sales Order transaction for shipping 2 quantities of RA1.
From the above flow of transactions, it is evident that 3 sub-inventories – SUB1,
SUB2 and SUB3 have been used for carrying transactions. These sub-inventories ha
ve a set of accounts (cost group) defined, representing each of the 5 cost eleme
nts. Similarly, the WIP accounting class, Discrete, used for WIP transactions al
so has a set of accounts defined.
These accounts are as represented below:
Fig 24. Accounts of Sub-inventories and Accounting Class
These are the accounts that are frequently hit by the transactions.
In addition to the above accounts, there are a few other accounts that would get
hit by the transactions, which would be presented at a later stage as and when
required.
Now, we proceed with the understanding of the transactions and the corresponding
accounting distributions generated.
1) A Purchase Order for 10 quantities of item A1 is created, received and delive
red into Sub-inventory SUB2. Price of item A1 on the Purchase Order is $14.
Please note that the material cost of A1 is $12 and Material Overhead cost is $3
.6 as shown in Fig.13.

Fig 25. Transaction Summary of Receiving transaction


As shown in the screenshot, a quantity of 10 of item A1 is received with destina
tion type Receiving and delivered with destination type Inventory.
Fig 26. Accounting of receiving transaction
As the PO has been raised for 10 quantities with a unit price of $14, the Receiv
ing Inspection account would get debited by an amount of $140 and the same amoun
t would credit the Inventory AP accrual account.
The Navigation for defining the Receiving Inspection Account is as follows:
Inventory -> Setup -> Organizations -> Receiving Parameters

Fig 27. Navigation for defining Receiving Inspection Account


The Navigation for defining the Inventory AP Accrual account is as follows:
Inventory -> Setup -> Organizations -> Parameters -> Other Accounts (T)

Fig 28. Navigation for defining Inventory AP Accrual account


After receiving the Purchase Order, a delivery is made to sub-inventory SUB2.
The accounting distributions generated are as follows:

Fig 29. Accounting Distributions of Receiving transaction

Fig 30. Accounting Distributions of Receiving transaction


As the Receiving Inspection account got debited by $140 by the receiving transac
tion, the same amount would credit it during the Delivery transaction. Hence the
transaction value column displays a value of –140 against the Receiving Inspectio
n account. The other account that gets credited is the overhead absorption accou
nt.
As noted earlier, material overhead cost of item A1 is $3.6 and since 10 quantit
ies have been delivered, this account gets credited by an amount of $36. This ac
count represents the absorption account of Material Overhead, Mat’l Hndlg, used fo
r Material overhead cost of A1 (Refer to Fig.13 which displays the Mat’lHndlg sub-
element).
The Navigation used for defining the Absorption account for a Material Overhead
or an Overhead is as follows:
Cost -> Setup -> Sub-Elements -> Overheads

Fig 31. Navigation for defining Overhead Absorption Account.


The Material Account of SUB2, 01-000-1410-1100-000, would get debited by $120 an
d the Material Overhead account, 01-000-1420-1100-000 would get debited by $36.
These figures are arrived based on the Costs defined for item A1 as shown in Fig
. 13.
The difference between the transaction values of Receiving Inspection Account an
d Material account of sub-inventory SUB2 is debited to the purchase Price Varian
ce account.
The Navigation for defining the Inventory AP Accrual account is as follows:
Inventory -> Setup -> Organizations -> Parameters -> Other Accounts (T)
Refer to Fig.28 for the same.
Note: - Purchase Price Variance calculation does not consider Material Overhead
------- Cost of the item.
Note: - Purchase Price Variance account would have got credited if transaction
-------- Value against Receiving Inspection account was less than $120 or if
Transaction value against Material account was more than $140.
2) A Return transaction is performed to return 2 faulty quantities of A1 to the
supplier based
on the same PO.
2 more lines would get added to the Receipt Transaction Summary as follows:
Fig 32. Transaction Summary of Return-to-Supplier transaction
Thus, the 2 quantities are first returned to Receiving and then to the Supplier.
The accounting entries created at the Receiving level would exactly display a re
versal of
the earlier ‘Receiving’ accounting entries.

Fig 33. Accounting of Return-to-Supplier transaction


The Receiving Inspection account would get credited by an amount of $28 as 2 qua
ntities
are being returned at a price of $14.
The same amount would debit the Inventory AP accrual account.
Similarly, the ‘Return to Supplier’ transaction distributions also display an exact
reversal
of the earlier PO Receipt transactions.
Fig 34. Accounting Distributions of Receiving transaction

Fig 35. Accounting Distributions of Receiving transaction


The Receiving Inspection account would get debited by an amount of $28 and the O
verhead absorption account by $7.2 i.e. $3.6 * 2quantities.
As the Material Cost of item A1 is $12, $24 would credit Material account.
$7.2 would credit material Overhead account, as Material Overhead Cost of A1 is
$3.6.
Purchase Price Variance account is hit by the difference between Material accoun
t and Receiving Inspection account.
Now, the on-hand quantity of item A1 is 8 in sub-inventory SUB2
3) A Miscellaneous Receipt is generated for Receiving 10 quantities of item R1 i
nto sub-inventory SUB1.
The charge account entered during Miscellaneous Receipt is 01-580-7740-0000-000.

Fig 36. Charge Account for Miscellaneous Receipt


Please note that R1 has a material cost of $10 and Material Overhead Cost of $2
defined. Refer to Fig. 15.

Fig 37. Accounting Distributions of Miscellaneous Receipt transaction


As 10 quantities are being received, material account of sub-inventory SUB1 is d
ebited by $100.
Similarly Material Overhead account is debited by $20.
The charge account entered during Receipt is credited by $120.
4) A sub-inventory transfer of 8 quantities of R1 is carried out from sub-invent
ory SUB1 to SUB2.

Fig 38. Sub-inventory transfer transaction


As material is being moved from SUB1 to SUB2, the accounts of SUB2 would get deb
ited and those of SUB1 would get credited.
Fig 39. Accounting Distributions of Sub-inventory transfer transaction
Material accounts are hit by a value of $80 as 8 quantities with a cost of $10 e
ach are being moved. Material Overhead accounts are hit by a value of $16 as 8 q
uantities with a cost of $2 each are being moved.
5) As per the earlier 4 transactions carried out, the on-hand quantity of A1 and
R1 in sub-inventory SUB2 is 8 each.
Using this on-hand quantity, let us proceed with the making of sub-assembly RA1
and deliver to sub-inventory SUB3.
A standard discrete job is created with a start quantity of 5 for making sub-ass
embly RA1. Completion sub-inventory is provided as SUB3.
Refer to Fig.7 for the routing used in making RA1.
Before proceeding with the understanding of WIP Assembly Distributions, let us h
ave a re-look at the costs rolled up for sub-assembly RA1.
This would ease the understanding of the accounting distributions generated.

Fig 40. Cost Rollup for item RA1


Hence the total cost of item RA1 after the rollup is $314.6
This cost is split across the cost elements as follows:

Fig 41. Element-wise Cost split for item RA1


The amount of $4 shown separately is the Material overhead Cost defined against
RA1.
This cost of RA1 existed, before the rollup for RA1 as done. Hence it is not inc
luded as part of the rolled up costs but is considered separately.
The distributions generated due to WIP Assembly Completion of 3 quantities of RA
1 are as follows:

Fig 42. Accounting Distributions of WIP Assembly Completion transaction

Fig 43. Accounting Distributions of WIP Assembly Completion transaction


The sub-inventory accounts of SUB3 would get debited as material is delivered to
this sub-inventory after completion. On the other hand, all accounts of WIP Acc
ounting Class are credited.
As 3 quantities are completed, the amounts in Fig. 41 get multiplied by 3 and de
bit the corresponding cost elemental accounts of sub-inventory SUB3.
The same behavior is exhibited by the WIP Accounting Class accounts too while ge
tting credited, except for the Material Overhead account. This account gets debi
ted by the rolled up Material Overhead Cost only, which is $18.3 ($6.1 * 3). The
Material Overhead cost of $4 defined for the sub-assembly RA1 is charged separa
tely to the overhead absorption account of ‘Mat’lHndlg’ sub-element.
This behavior is exhibited because Material Overheads of the sub-assembly (RA1 i
n this case) that is being completed are not charged to the job. They are charge
d separately to the Overhead Absorption account of the specific Material Overhea
d sub-element.
However, the same is charged to the Material Overhead account of the Inventory V
aluation accounts (Sub-inventory accounts).
1) The job in the previous transaction was completed for 3 quantities only thoug
h start quantity was 5 due to faulty work during operations 10 and 20.
Thus we would scrap the remaining 2 quantities, one at operation 20 and the othe
r at operation 10.
Let us first look at the Distributions generated due to the WIP Assembly scrap t
ransaction performed at operation 20.
Fig 44. Accounting Distributions of WIP Assembly Scrap transaction at operation
20
As far as WIP Accounting Class is concerned, the accounting distributions genera
ted are almost same as the ones generated for assembly completion transactions a
s the assembly is put to scrap after completion of the last operation. As a resu
lt, all the resources used in the routing are used up and also all the correspon
ding Overheads are incurred.
However, the only difference occurs due to the Material Overhead cost defined fo
r the subassembly RA1. This is because Material Overheads are incurred only when
the item is completed into a sub-inventory in case of WIP transactions and rece
ived in a sub-inventory in case of purchasing transactions. Hence, the accountin
g entries generated on the credit side are same as the ones provided in fig. 41.
Material Overhead account does not include the $4 defined at subassembly level.
The corresponding account that is hit on the debit side is the Scrap account ent
ered during the Scrap transaction.
The Navigation for defining scrap account for specific transaction is as follows
:
WIP -> Move Transactions -> Move Transactions
The scrap account can be provided in the Move Transactions form only if the opti
on ‘Require Scrap Account’ is checked in the WIP Parameters form.
The Navigation for the same is as follows:
WIP -> Setup -> Parameters -> Move Transaction (T)
The distributions generated due to scrap transaction performed at operation 10 a
re as follows:

Fig 45. Accounting Distributions of WIP Assembly Scrap transaction at operation


10
As 1 quantity of assembly RA1 is scrapped at operation 10, Material, Material Ov
erhead, Resource and Overhead costs associated with Operation 10 would only get
considered. The costs associated with Operation 20 would not come into picture.
Also, as in the previous scrap transaction, the material overhead cost defines a
t sub-inventory level, $4, is not considered.
Component R1 and Resource LAM are attached to operation 10 of the routing.
The corresponding overhead associated with LAM is ‘Mgmt’. Refer to Fig.7.
From Fig.40, Material and Material Overhead costs rolled up for item R1 are $12.
5 and $2.5 respectively.
Resource cost incurred due to usage of resource LAM is $12.
Similarly, Overhead cost due to Mgmt is $108.
Based on above costs, corresponding accounts of WIP Accounting Class are hit. Sc
rap account entered during the scrap transaction is 01-000-7730-0000-000.This ac
count gets debited.
2) The last transaction that is undertaken is the shipment of 2 completed quanti
ties of the sub-assembly RA1 from sub-inventory SUB3. Booking a Sales Order in O
rder Management module of the Applications carries out this transaction. It actu
ally comprises 2 steps wherein the 2 quantities are first moved to ‘Staging’ sub-inv
entory and then shipped from there.
The distributions generated due to the first step where material is moved from s
ub-inventory SUB3 to sub-inventory Staging1 are as follows:

Fig 46. Accounting Distributions of Sales order Pick transaction


A close look at the distributions would indicate that they are very similar to t
he ones generated by a sub-inventory transfer transaction.
This is because the Sales Order Pick transaction transfers material from one
Sub-inventory to the other.
Hence, the accounts of SUB3 would get credited and the corresponding accounts of
Staging1 would get debited.
As 2 quantities are being transferred, the values in Fig. 41 would get multiplie
d by 2 and the same would hit the accounts.
The second step would involve shipment of quantities from the Staging sub-invent
ory. The distributions generated for the same are as follows:

Fig 47. Accounting Distributions of Sales Order issue transaction


As material is moving from staging sub-inventory, valuation accounts of this sub
-inventory would get credited. Note that these were the same accounts that got d
ebited by the Sales Order Pick transaction.
The account that is getting debited, 01-520-5110-0000-000, is the Cost of Goods
Sold account.
The Navigation for defining the Cost of Goods Sold account is as follows:
Inventory -> Setup -> Organizations -> Parameters -> Other Accounts (T)

Fig 48. Navigation for defining the Cost of Goods Sold account

3. Advanced / other features of the module


i. Retroactive Pricing
Cost Management supports retroactive price changes in Oracle Purchasing. Over th
e life of purchasing documents, prices can change.
The Retroactive Price Update on Purchasing Documents concurrent program automati
cally updates purchase orders and blanket releases retroactively with price chan
ges. When this occurs, the accounting is adjusted:
• For purchase orders with a destination type of Inventory/Shop floor
The adjustment account is posted to the Retroactive Price Adjustment account. Th
is account is defined at the organization level in the Receiving Options window
in Oracle Purchasing.
The following accounts and costs are not adjusted:
– Inventory and Work in Process valuation accounts
– Costs are not recalculated in Average and LIFO/FIF0 cost orgs.
– Purchase price variance
When a price change is approved, adjustments for prior receipts are created:
Account Debit Credit
Retroactive Price Adjustment XX –
Inventory AP Accrual – XX
• For purchase orders with a destination type of Expense
The adjustment amount is posted to the Charge account specified on the purchase
order.
When a price change is approved, adjustments are created in the following accoun
ts:
Account Debit Credit
Charge XX –
Inventory AP Accrual – XX
Transfer of ownership transactions, created for consigned goods, are also adjust
ed when the price on the associated blanket agreement is changed and approved.
ii. Transfer Price Costing
You have the option to use the transfer price for inter-company accounting. Tran
sfer price costing occurs when a sales order is created for an in-transit transf
er, between two internal organizations, in two different operating units.
This functionality is flagged in the Transfer Pricing Option profile option. Tra
nsfer pricing is used in calculating Profit in Inventory. The operating unit ass
ociates a price list with any operating unit.
Features of this functionality include:
• Accounting distributions for internal order transfers are the same entries as an
external sales order and purchase order.
• Incoming item cost for the Receiving organization is the transfer price, rather
than the item cost of the Shipping organization.
• Profit in Inventory is reported at the individual company level for internal ord
er transfers, and eliminated at time of consolidation.
• The transfer price takes priority over the transfer charge. It is recommended th
at transfer credit is not set up in the Shipping Network window to avoid the val
ue calculated in new entries. For internal transfers, freight is not charged dir
ectly.
• For actual costing (Average, FIFO, and LIFO) – the whole cost is used for the inve
ntory transaction, rather than divided between standard cost and purchase price
variance.
Required Setups:
• Define Inter-company relationships between operating units
• In the Shipping Networks window in Oracle Inventory, add values for In-transit I
nventory and Profit in Inventory accounts. These fields are located in the Other
Accounts tabbed region.
Set the profile option CST: Transfer Pricing Option to Yes.
iii. Client Extensions
Oracle Cost Management provides flexible cost processing. However, many companie
s have business requirements that are unique to their company or country. To add
ress these unique requirements, Cost Management provides subprograms which enabl
e you to extend the functionality of the product to implement and automate compa
ny–specific business rules. In other words, subprograms provide extensibility by l
etting you tailor the PL/SQL language to suit your needs. For this reason these
subprograms are commonly known as client extensions.
Extensions are applicable to all organizations unless the client extension is de
signed to restrict its use.
The following table lists the Cost Management client extensions and their predef
ined template function files. The template function files are stored in the Cost
Management admin/sql directory.
Client Extension Name Description Costing Method Package Specification
Body
Accounting Entry Extension Use this extension to create a different set of
debits and credits than those derived by the system. You should not use this cli
ent extension if you are using the Account Generation Extension. Standard
CSTSCHKS.pls
CSTSCHKB.pls
Average CSTACHKS.pls
CSTACHKB.pls
Account Generation Extension You can use this extension to provide alternativ
e accounts per your requirements for account distributions. These accounts are p
icked and used by the cost processor when the cost processor performs accounting
distributions. You should not use this client extension if you are using the Ac
counting Entry Extension. Standard CSTSCHKS.pls
CSTSCHKB.pls
Average CSTACHKS.pls
CSTACHKB.pls
Transaction Cost Extension You can use this extension to reset the elementa
l costs of transactions in average costing organizations. Average CSTACHKS
.pls
CSTACHKB.pls
Cost Processing Cutoff Date Extension You can use this extension to process on
ly transactions up through a user–specified date. You can only use this extension
in average costing organizations. Average CSTACHKS.pls
CSTACHKB.pls
Project Cost Collector Transaction Client Extension The Project Cost Collect
or Transaction client extension provides the user the flexibility to control the
logic of inserting records into the Projects interface table (PA_TRANSACTIONS_I
NTERFACE_ALL) for each inventory transaction. Average CSTCCHKS.pls
CSTCCHKB.pls
Project Cost Collector Accounting Extension This extension gives the users t
he flexibility to pass accounts to the project interface. The extension may be u
sed for passing custom capitalization accounts. Average CSTPMHKS.pls
CSTPMHKB.pls
To define company specific rules using client extensions, you design and write t
hese rules using PL/SQL functions; these functions are called during specific po
ints in the normal processing flow of Cost Management.
These functions that you write are extensions rather than customizations because
they are supported features within the product and are easily up-gradable betwe
en releases of the product. Customizations are changes made to the base product
and are not supported nor easily upgraded.
iv. Account Generation Extension Workflow
The Account Generation Extension workflow is called from the Account Generator C
lient Extension. The workflow is designed to provide a graphical user interface
to the Client Extension, as well as additional features such as drag–and–drop functi
onality. The workflow, like the Client Extension, allows you to specify the acco
unts for distribution based on the type of transaction or to define your own bus
iness functions to generate the desired accounts. You may choose to continue usi
ng the Account Generator Client Extension without using the workflow, by turning
off the call to the workflow within the client extension.
If you choose to use the workflow, you modify the workflow rather than the Clien
t Extension. The Account Generation Extension workflow has two item types: the S
tandard Costing Workflow Item Type and Average Costing Workflow Item Type. Each
of these workflow item types has 19 processes, one for each accounting line type
. Line types identify which accounts are used, for example, inventory valuation
or WIP variance accounts. Each process can be initiated from the Account Generat
ion Client Extension, based on the costing method and the accounting line type.
For standard costing, std_get_account_id package function is called.
For average costing, get_account_id package function is called.
To view the properties of any of the processes, select the process in the naviga
tor tree, then choose Properties from the Edit menu. When you display the Proces
s window for an Account Generation Extension process, you see that the process c
onsists of three unique activities, several of which are reused to comprise the
three activity nodes that appear in each workflow process diagram. The nodes are
numbered for referencing below, but the numbers are not part of the process dia
gram.
As illustrated in the following diagram, all of the processes in the Account Gen
eration Extension workflow have the same structure and therefore only one is sho
wn in this document.

Each of the workflows processes is launched from the Account Generation Client E
xtension. The exact workflow process called is dependent on the costing method (
standard or average) and the accounting line type. The workflow begins at node 1
with the Start activity. At node 2, the default account (–1) is returned. Node 3
is the end activity.
v. View Transactions

Explain in brief the advanced or other features of this module. Explain the purp
ose, importance and functionalities in brief. Show navigations. Attach screen sh
ots. But you need not have to offer detailed information on these features.

E.g. in Inventory module…..


1. Physical Inventory
2. Cycle Count
3. Min-Max Planning
4. Important Set Ups
a) Setups Related to Other Modules
Application Setup
Oracle General Ledger Define Your Set of Books for Perpetual Costing
Entering Daily Rates
Entering Period Rates
Oracle Inventory Define Your Organizations
Define Your Organization Parameters for Perpetual Costing
Define Your Units of Measure
Define Your Sub-inventories
Define Your Categories
Define Category Sets
Open Your Accounting Periods
Define Your Default Category Sets
Define Your Items, Item Attributes, and Controls
Define Your Account Aliases
Launch Your Transaction Managers
Oracle Purchasing Define Your Receiving Options and Controls
Define Your Purchasing Options
Oracle Bills of Material Define Your Bills of Material Parameters
Define Your Resources
Define Your Departments
Assign Resources to a Department
Define Overheads and Assign them to Departments
Oracle Work in Process Define WIP Accounting Classes and Valuation Accounts
Define WIP Parameters

b) Setups Related to Cost Management


Following is the summary of setup steps for Oracle Cost Management
Sr. No. Step Details Comments
1 Set Your Personal Profile Options Cost Management personal profile
options control defaults within windows as well as data processing options.
2 Set Your Security Functions Cost Management security functions deter
mine what information can be viewed, created, updated, and deleted in certain wi
ndows in Cost Management.
3 Define Your Cost Types You must define cost types. Each cost type conta
ins a unique set of costs and has its own set of cost controls.
Default : Frozen for Standard Costing, Average and Average Rates for Average Cos
ting
4 Defining Your Activities and Activity Costs You can define activitie
s, activity rate information, and activity and activity cost type associations.
You can assign an activity to any cost. If you use the activity basis type, you
can directly assign the activity cost to the item. When you use the other basis
types, the cost is based on the sub-element, basis type, and entered rate or amo
unt. The activity defaults from the sub-element; and, if needed, you can overrid
e the default.
5 Define Cost Groups You can define cost groups and use them to group
project related costs. Additional Information: This step is conditionally requi
red if you plan to transfer project costs to Oracle Projects.
Default: The organization’s default cost group.
6 Define Material Sub-elements Material sub-elements classify material
costs, such as plastic or metal. A material sub-element has a default activity a
nd a default basis type assigned to it.
7 Define Overheads You can use material overhead and overhead cost
sub-elements to add indirect costs to item costs on either a percentage basis or
as a fixed amount.
8 Define Material Overhead Defaults You can define and update defaul
t material overhead sub-elements and rates at the organization or category level
. When you define items in Oracle Inventory, these defaults are automatically us
ed. This speed data entry when defining items.
9 Associate Expenditure Types with Cost Elements You must associate expen
diture types with cost elements so that project transfers and the project relate
d costs associated with miscellaneous transactions can be properly processed onc
e they are transferred to Oracle Projects. Additional Information: This step is
conditionally required if you to plan to transfer project costs to Oracle Projec
ts.
10 Define Category Accounts (Optional) You can define category accounts
. Category accounts are part of the product line accounting setup.
11 Associate WIP Accounting Classes with Categories (Optional) You can
associate WIP accounting classes with category accounts. Default WIP accounting
classes are part of product line accounting setup.

i. Set Personal Profile Options


Profile Option Comments Values
CST: Account Summarization Indicates whether, in standard costing, elementa
l accounts are summarized before being transferred to General Ledger. Yes
No If this profile is set to No, elemental account visibili
ty is maintained. You can set this profile to No if you are using average costin
g, but it has no effect.
CST: Cost Rollup – Wait For Table Lock Indicates whether the cost rollup waits
until the desired information in
Cost Management tables is available Yes The program will continually att
empt to lock the tables.
No The program tries 10 attempts to lock tables before endi
ng
rollup request.
CST: Cost Update Debug Level Indicates none or the level and type of debug me
ssages to print in the cost update log file. Regular Every subroutine.
Extended Each SQL statement
Full Same as Extended and keeps any temporary data in the dat
abase.
CST: Exchange Rate Type Indicates how to convert foreign currency. Margin Analys
is Report, the Material Distribution Report, and the WIP Distribution Report. Wh
en entering a foreign exchange rate for one of these reports, you must specify t
he exchange rate type. For reporting profit and loss results, different countrie
s use different financial standards. period average
rate For Example U.S. companies convert using the period average rate
period end rate For Example Australian companies use the period
end rate.
CST: Maintain Cost Privilege This profile option is used in the security func
tion when you define, update, or delete cost information. The profile option mus
t be set to Yes to submit the Purge Standard Cost Update History concurrent prog
ram. Yes Profile option is enabled.
No Profile option is disabled.
CST: Period Summary
This profile option is used to indicate if period summarization is
performed when the closing an accounting period using the Inventory
Accounting Periods window.
Automatic Period summarization process is performed automatically
when the period is closed. The status of the period becomes Closed after summari
zation process is completed. This is the default value.
Manual When a period is closed, the period summarization proces
s
is not automatically launched. The status of the period is Closed not Summarized
. You must run the Period Close Reconciliation report if you want to calculate s
ummarization data – and at that point the status becomes Closed.
CST: Transfer Pricing Option This profile option is used to enable transfer p
rice functionality for
inter company accounting No Transfer price costing is disabled. This
is the default value.
Yes, Price Not As Incoming Cost The incoming cost to the Receivi
ng
organization is the Shipping organization’s inventory cost.
Yes, Price As Incoming Cost The incoming cost to the Receivi
ng
organization is based on the transfer price.
CST: View Cost Privilege This profile option determines whether certain c
osting reports indicate
display cost information.
CST: Item Category for Inflation Adjustment Ignore this unless you are using
the Colombia responsibility.
CST: Item Category Sets for Inflation Adjustment Ignore this unless you a
re using the Colombia responsibility.
CST: Price Index for Inflation Adjustment Ignore this unless you are using
the Colombia responsibility.
ii. Set Security Functions
Security function options specify how Oracle Cost Management controls access to
and processes data. The system administrator sets up and maintains security func
tions.
Function Name Comments
Privilege to View Cost CST_VIEW_COST_INFORMATION Determines whether the p
rivilege to view costing information can be prohibited from the following window
s:
• Resources (in Bills of Material)
• Departments (in Bills of Material)
• Indented Bills of Material (in Bills of Material and Engineering)
Attention: By leaving the Privilege to View Cost security function as part of a
user’s responsibility, but excluding the Privilege to Maintain Cost function, you
can allow the user to print reports but not change any stored costs.
Privilege to Maintain Cost CST_MAINTAIN_COST_INFORMATION Determines wheth
er the privilege to create, update, or delete costing information can be prohibi
ted from the following windows: The following windows are governed by this funct
ion:
• Bills of Material (in Bills of Material and Engineering)
• Routing (in Bills of Material and Engineering)
Attention: To use either of the Cost Rollup options where costs are committed to
the database, the Privilege to Maintain Cost security function must be included
as part of the responsibility.
Cost Group: Maintain CST_CSTFDCGA_MAINTAIN Determines whether the privilege
to create, update, or delete cost group information can be prohibited from the
Define Cost Group window.
Activities: Maintain CST_CSTFDATY_MAINTAIN Determines whether costing infor
mation can be created, updated, or deleted from the Activities window.
Cost Types: Maintain CST_CSTFDCTP_MAINTAIN Determines whether costing infor
mation can be created, updated, or deleted from the Cost Types window.
Item Costs: Maintain CST_CSTFITCT_MAINTAIN Determines whether costing infor
mation can be created, updated, or deleted from the Item Costs window.
Material Sub-elements: Maintain CST_CSTFDMSE_MAINTAIN Determines whether costi
ng information can be created, updated, or deleted from the Material Sub-element
s window.
Overheads: Maintain CST_CSTFDOVH_MAINTAIN Determines whether costing infor
mation can be created, updated, or deleted from the Overheads window.
Define Cost Types
Defining Activities and Activity Costs
Define Cost Groups
Define Material Sub-elements
Define Overheads
Define Material Overhead Defaults
Associate Expenditure Types with Cost Elements
Define Category Accounts (Optional)

Associate WIP Accounting Classes with Categories (Optional)


5. Inter Module Dependencies
Explain how this module is dependent on other module or vice versa. You can show
the relationship in a pictorial form / flow chart.
6. Seeded technical objects
Give details on important reports, interfaces, work flows etc.
Give Parameters for critical reports. Specify the importance of them, show sampl
e output. You can embed output in HTML or any other clear format.
Explain important interfaces in detail. E.g. GL Interface that transfers data fr
om AP / AR / FA / PO / INV / WIP to GL.
Or Shipping Interface that transfers Shipment Lines to AR for Auto-invoicing.
What tables will grow when running cost rollups and updates
fact: Oracle Cost Management 11.0.3
fact: CMCICU - Update Standard Costs
fact: CSTRBICR3 - Cost Rollup

fix:
The update standard cost program (CMCICU) updates the following tables:
CST_COST_UPDATES
CST_ITEM_COSTS
CST_ITEM_COST_DETAILS
CST_RESOURCE_COSTS
CST_STANDARD_COSTS
MTL_MATERIAL_TRANSACTIONS
MTL_SYSTEM_ITEMS
WIP_OPERATIONS_RESOURCES
WIP_PERIOD_BALANCES
WIP_SCRAP_VALUES
The assembly cost rollup (CSTRBICR) updates the following tables:
BOM_BILL_OF_MATERIALS
CST_COST_TYPES
CST_ITEM_COSTS
CST_ITEM_COST_DETAILS
The above tables do not actually grow in size. The updated information
replaces the records already in the tables.
The actual tables that grow will be temp tables, such as:
CST_STD_COST_ADJ_TEMP
MTL_MATERIAL_TRANSACTIONS_TEMP
CST_ROLLUP_DELETE_TEMP,
BOM_EXPLOSION_TEMP
These tables should be self-cleaning (i.e., they should automatically delete
the records after completion of the process). If for some reason they do not,
because they are temp tables, truncate them from time to time.

7. Periodic Actions, Reconciliations etc.

This is a very important aspect of this document and you need to use your all ex
perience while drafting this. Detail out all important periodic actions performe
d within this module, give their importance. Attach screen shots, show navigatio
ns.
Show…..
1. Module opening and closing
2. Data transfer to GL or other module, if applicable
3. Processes that are to be followed on occurrence of certain events (e.g.
Fill Employee Hierarchy request in PO module)
4. Show how do you reconcile this module with GL. This is more applicable f
or Finance modules; however, equally applicable for some other modules live INV,
WIP.
5. Month End, Quarter End, Year end processes to be followed.
6. Periodic Change of set ups (e.g. Resetting document numbering in Purchas
ing if separate series is to be used for the new year)
7. Change of set ups due to change in tax structure (applicable for Finance
modules to fix changes made in Union Budget)
8. Running of certain reports to capture monthly, yearly data.
8. Accounting Entries

This needs to be done only for the basic functionalities of the module.
Show accounting effects of major transactions within your module. Also show the
source (with screen shots) of the account code combinations (CC) used within the
accounting entry.
e.g. Accounting Entry generated upon Ship Confirm is….

Cost of Goods Sold (Debit) CC captured from Inventory Parameters


Finished Good Inventory (Credit) CC captured from Sub-Inventory Definition.

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