Friday, October 26, 2012

Oracle Inventory Costing Overview



Under standard costing, predetermined costs are used for valuing inventory and for charging material, resource, overhead, period close, and job close and schedule complete transactions. Differences between standard costs and actual costs are recorded as variances. 
Use standard costing for performance measurement and cost control. Manufacturing industries typically use standard costing. 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, intransit inventory, and discrete work in process jobs 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 once for each item (in the cost master organization) and share those costs with other organizations.

If you share standard costs across multiple organizations, all reports, inquiries, and processes use those costs. You are not required to enter 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 master organization can use Bills of Material.

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 material to inventory updates the unit cost of the item received. Issues from inventory use the current average cost as the unit cost. By using Oracle Cost Management’s average costing method, you can perpetually value 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 of 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 applied to repetitively manufactured items. Therefore, you cannot define repetitive schedules in an organization that is defined as a manufacturing average cost organization. This same average cost is used to value transactions. You can reconcile inventory and work in process balances to your accounting entries. Note: Under average costing, 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 average costs.

As an option to the mandatory perpetual costing system, which uses either the standard or average costing methods, Cost Management provides support for two methods of Periodic Costing: 
• Periodic Average Costing (PAC) 
• Periodic Incremental LIFO (Last–In First–Out) Periodic Costing is an option that enables you to value inventory on a periodic basis. There are three principal objectives of Periodic Costing: 
• To capture actual acquisition costs based on supplier invoiced amounts plus other direct procurement charges required by national legislation or company policy 
• To capture actual transaction costs using fully absorbed resource and overhead rates 
• To average inventory costs over a prescribed period, rather than on a transactional basis You must set up a perpetual costing method (standard or average) for each inventory organization that you establish in Oracle Inventory. In addition, you have the option to use Periodic Costing. 
You can choose to create Periodic Costing distributions and send them to the General ledger after a Periodic Costing run. You can also disable the perpetual costing General Ledger transfer, electing instead to produce accounting entries only after a Periodic Costing run. Oracle maintains the perpetual system and the periodic system (if one is enabled) separately and produces separate reports.

Oracle Applications support flow manufacturing and costing for Flow Manufacturing in both standard and average costing organizations. 

Assembly Completions and Return Transactions You can complete assemblies from and return assemblies to both scheduled and unscheduled flow schedules using the Work Order–less Completions window. When you return assembles to a flow schedule, the components are automatically returned to inventory. Unscheduled flow schedules, also known as work order–less completions, make it possible for you to complete and return assemblies without having to first create a job or repetitive schedule. When you complete flow schedules, the costs incurred and variances and costs relieved are processed and reported with respect to the transaction itself. This costing methodology differs from that used for discrete jobs, which track and report costs by job, and repetitive schedules, which maintain and track costs by repetitive assembly/line combination and allocate them across repetitive schedules. 

Transaction Processing Component backflush transactions, triggered by flow schedule completion transactions, are automatically costed. The resource and overhead transactions that are triggered by completion transactions are likewise automatically costed. Only one completion transaction and its associated component, resource, and overhead transactions must be processed each time a flow schedule is transacted. In other words, these transactions are processed as a set. Resource and overhead transactions from other flow schedules or other completion transactions for this same flow schedule are not processed in this set. This ensures that period balance information is properly maintained. If any transaction associated with flow schedule completions fail to process, all associated transactions are rolled back.  

Zero Balance Under standard costing, all cost transactions and variance transactions associated with flow schedule completions are processed at the same time as the Assembly Completion. Therefore the net balance in the flow schedule is always zero. Flow schedule assembly return transactions are similarly processed.

Assembly Scrap Assembly scrap is costed the same way for both standard and average costing. You can scrap and return scheduled and unscheduled assemblies at any routing operation. You can scrap and return scrapped assemblies even if there is no routing. Operation Pull and Assembly Pull components associated with the scrap operation and prior operations are automatically backflushed. Assemblies scrapped can be returned, thus returning the issued components back to inventory. 

WIP scrap transactions and WIP return from scrap are available transaction types in the Work–Orderless Completions window.

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