SCM Presentation22 Costing

8/9/2019 SCM Presentation22 Costing

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perform extensive cost simulations using unlimitedcost types determine prot margin using expected product costs

update standard costs from any cost type revalue onhand inventories, intransit inventory, anddiscrete work in process jobs when updating costs record variances against expected product costs measure your organizations performance based onpredened product costs

f standard costs is shared across multipleorganizations, all reports, in!uiries, and processes usethose costs and no need to enter duplicate costs" #he

cost master organization can be a manufacturingorganization that uses $ork in %rocess or &ills of'aterial"

(ost management uses product costs to valueinventory and determine protability" )enerallyaccepted methods for setting product costs are*tandard (osting+verage (osting- .irst n irst -ut/ (osting%eriodic +verage (ostingncremental 0- .0ast n irst -ut/ (osting

Standard Costing1

*tandard costing uses predened costs that are xedfor a specied period of time and it is used forperformance measurement and control"n standard costing component costs .material costs/can be dened and also associated with indirect costs.material overhead /(an 2oll up assembly costs using &-' and routings,where as &-' is used to determine the component costof an assembly and routings are used to apply bothinternal .resource/ and external .outside processing/conversion costs as well as indirect costs .overhead/ toassemblies"3i4erences between standard costs and actual costsare recorded as variances"5alue is maintained by cost elements .6x" material,

material overhead, resource, outside processing, andoverhead/"

(ost 'anagement can be used for15alue inventory and work in process on a perpetual5alue inventory and work in process on a perpetual

basisbasis(hoose a perpetual costing method, including standard(hoose a perpetual costing method, including standard

costing or average costing, for each organizationcosting or average costing, for each organization*imulate, analyze, and forecast product costs*imulate, analyze, and forecast product costs6asily update and manage item unit costs6asily update and manage item unit costslexibly dene the inventory structure and costlexibly dene the inventory structure and cost

controls that are important to your businesscontrols that are important to your business

5iew and report item costs, inventory and work in5iew and report item costs, inventory and work inprocess values, accounting entries, and gross marginsprocess values, accounting entries, and gross margins

2ole of (ost 'anagement 12ole of (ost 'anagement 1(ost management can be used to implement(ost management can be used to implement

operational control and analysis for an organization"operational control and analysis for an organization"6stablish product costs6stablish product costs(ontrol and value inventory(ontrol and value inventoryormulate budgets and plansormulate budgets and plans+nalyze protability+nalyze protability)enerate management reports)enerate management reportsorecast protabilityorecast protability


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Transactions in Standard Costing

6xamples of nventory transactions using standardcosts1

%urchase -rder 2eceipt to 2eceivingnspection *ales -rder *hipments 'iscellaneous #ransactions nter7-rganization #ransfers

6xamples of $% transactions using standard costs1

(omponent ssue and 2eturn#ransactions 'ove #ransactions -utside %rocessing (harges -verhead (harges

Oracle Cost ManagementOracle Cost Mana

gement helps to manage andhelps to manage andcontrol business" (ost 'anagement is used for1control business" (ost 'anagement is used for1%roduct costingnventory valuation$% valuation(ost simulation'argin analysis


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+ cost type is a set of costs uni!uely identied byname" #wo costtypes are predened,Frozen .for standard costs/ andAverage.

You can dene and update an unlimited number ofadditionalsimulation or unimplemented cost types" 6ach costtype has its own

set of cost controls"


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Cost Elements%roduct costs are the sum of their elemental costs" (ostelements aredened as follows1Material: #his is the raw material8component cost atthe lowest level of the &-' determined from the unitcost of the component item"Material Overhead:#he overhead cost of materialwhich is attributed to direct material costs, is calculated

as a 9 of the total cost, or as a xed charge per item,lot, or activity"Resource:2esource is the direct costs, such as people.labor/, machines,space, or miscellaneous charges, re!uired tomanufacture products"Overhead:#he overhead cost of resource and outsideprocessing, calculated as 9 of the resource or outsideprocessing cost, as a xed amount per resource unit, oras a xed charge per item"Outside Processing:#his is the cost of outside

processing purchasedfrom a supplier" -utside processing may be a xedcharge per item or lot processed, a xed amount per-*% resource unit"

Subelements:ou can use subelements as smaller classications ofthe cost elements"6ach cost element must be associated with one or moresubelements"3ene subelements for each cost element and assign arate or amountto each one"

Material subelements: (lassify your material costs,such as plastic, steel,or aluminum" 3ene material subelements and assignthem to item costs" 3etermine the basis type .allocationcharge method/ for the cost andassign an appropriate amount"Material Overhead subelements:'aterial overheadsubelements are assigned to item costs also basis typeshould be determined for the cost" 3ene anappropriate rate or amount, such as purchasing, freight,duty, or material handling"Resource subelements:+fter dene resourcesubelements, for cost determine basis type and dene

an appropriate rate or amount" 6ach resourcesubelement, can be set up to charge actual or standardcosts, and may generate a rate variance when charged"Overhead subelements:-verhead subelements to beassigned to item costs" 3etermine the basis type for thecost and dene an appropriate rate or amount"-verhead subelements are applied in the routing andusually represent production overhead"Outside Processing subelements:3ene outsideprocessing subelements" 3etermine the basis type for

the cost and dene an appropriate rate or amount" #hissubelement is associated with the outside processingcost element and represents service provided bysuppliers" 6ach outside processing resource you deneis a subelement, may be set up to charge actual orstandard costs, and may generate a purchase price

variance when charged"


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6nter a material sub element name" *elect the defaultactivity which is defaulted each time the sub element isused to dene an item cost"

+ctivities are processes or procedures that consumecosts and time" n addition to the cost element and sub

element, all costs are associated with an activity"*elect the default basis for the material sub element""&asis is the method used to determine how to charge atransaction or apply product costs"tem1 :ou charge a xed amount per item"0ot1 #he item cost is calculated by dividing the ordercost by the lot size"

*ubelements for (ost element ;'aterial< are denedhere" 'aterial sub elements classify material costs" +material sub element has a default activity and a defaultbasis type assigned to it"

*ubelements for (ost element ;-verhead< and

;'aterial -verhead< are dened here":ou can use material overhead and overhead costsubelements to add indirect costs to item costs on eithera percentage basis or as a xed amount

:ou can base the overhead charge on the number ofresource units or percentage of resource value earnedin the routing operation" :ou can also set up movebased overheads where the rate or amount is charged

for each item moved in an operation" #o do this, use thetem or 0ot basis types"


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#o dene or view item cost information, you must rstselect an item 8cost type association" tem costs are always associatedwith a cost type"

n the tem (osts 3etails window, ndicate whether touse default cost controls from the default cost type orthose you dene for the current cost type" f you turnthis on, you cannot modify the cost controls or createuserentered costs for this item"#urn nventory +sset on to indicate that for this costtype the item is an asset and has a cost" #urn nventory

+sset o4 to indicate that for this cost type the item is aninventory expense item and cannot have a cost"ndicate whether costs are based on a rollup of the

items &-' = routing" #his determines if the structureof the item is exploded during the cost rollup process"#urn this o4 if the assembly for which you do not wantto change the cost" )enerally, assemblies .make items/have this control turned on, and buy items have thisturned o4"

* l h l = b l i l


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*elect the cost element = subelement" or material costelements, the default is the material subelement youdened for the current organization"

2ate or +mt1 6nter a percentage rate or a xed amount,as appropriate for the basis" (ost information for thecurrent item and cost type combination is displayed1

&asis1 &asis types determine how costs are assigned tothe item" #hese are assigned to subelements, which arethen assigned to the item" 6ach subelement must have abasis type"tem wise or #otal value wise in which the cost would betotal cost of item multiplied by the 2ate value"

&asis factor1 is the amount or !uantity the rate8amountis multiplied by to calculate the unit cost of thesubelement"#he manufacturing shrink factor .the multiplier used inthe unit cost calculation/, which uses the following

e!uation1 >8 .> manufacturing shrinkage/

+ctivity1 +ctivity is an action or task you perform thatuses a resource or incurs cost" +ctivities can beassociated with all product costs" +ctivities u can bedened and assigned to any subelements" +ctivites canalso be assigned to costs and build the costs based on

activities"

t t d t il i l d t t l i f ti d


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3ene costs for buy items or enter additional costs forassemblies withcosts generated from the cost rollup"f you share costs, you can only dene costs in the costmasterorganization" $hen you dene an item, the systemcreates a costrecord according to the costing method, the rozen or

+verage cost

type"

tem costs details include cost control information andbasic costinformation"


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BOM d C t R ll


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BOM and Cost Rollups :&-' and routings dene the foundation for cost and allrelated manufacturing costing functions"

2olling ?p +ssembly (osts 1+ full cost rollup or a singlelevel cost rollup can be

done based on the re!uirement"

&uy assembly 1 #he total cost consists of the materialand material overhead cost elements only'ake assembly 1 #he total cost consists of the material,resource, overhead, and outside processing costelements

#he primary bill for an assembly determines thestandard material and material overhead costs of thatassembly"#he primary routing for the assembly determines thestandard resource, outside processing, and resource

overhead costs of that assembly" or phantomassemblies, the cost rollup includes the material costsand the routing costs in the cost of higher levelassemblies"

ull cost rollup rst performs a &-' explosion forassemblies" #he rollup process builds the cost ofassemblies, starting with the lowest level, and works upthe structure to top level assemblies" #his method gives

you the most current bill of material structure andcomponent costs"

+ singlelevel rollup only looks at the rst level of thebill structure for each assembly in the rollup, and rollsthe costs for the items at this level into the parent" #his

method does not re@ect structure or cost changes thathave occurred at a level below the rst level of yourassemblies"#he cost rollup includes the material costs and therouting costs of phantom assemblies in the cost ofhigher level assemblies as this level costs"?se a single level rollup to assign new standard costs tothe topassembly, but not to the lowerlevel assemblies" + singlelevel rollup allows you to generate costs on new

assemblies without changing costs on existingsubassemblies"


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#he standard cost update procedure will help to


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#he standard cost update procedure will help todene and roll up pending costs, simulate changesto standard costs for analysis, and then updatepending costs to the rozen standard cost type"#o update standard costs dene costs and rates,and follow thefollowing procedures1

3ene a cost type for pending standard costs" 3ene pending costs for each of the cost

elements1 material.inventory items, both components and assemblies/,materialoverhead, resources, overhead, and outsideprocessing"

:ou can also dene pending rates for resources andoverhead"

2oll up pending costs" #his adds up pending costsfor all costelements of an assembly and creates a new pendingcost for theassembly"

%rint and review preliminary adjustment reportsto see potentialchanges to the frozen standard costs"

?pdate pending costs to frozen standard costs" -ptionally, print new standard cost reports"


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%urge cost types and all costs within the cost type


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%urge cost types and all costs within the cost type,purge only part of the cost information, such asmake or buy items, resource and outside processingcosts, overhead rates and amounts, or resource andoverhead associations"(annot purge frozen costs in standard costing oraverage costs in average costing"%urge permanently removes the selected cost type

information from the database" #hese records arenot retrievable" (an safeguard selected cost typesfrom inadvertent purging by disabling the +llow?pdates check box when dening cost types"


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#he costing organization that controls the costs in


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#he costing organization that controls the costs inyour current organization and the costing method aredisplayed"or standard costing, select a material sub7elementthat this organization uses as a default when youdene item costs"

Standard vs. #verage Costing


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Oracle Average CostingOracle Standard Costing

Unit cost of item is average value of all receipts of that item to

inventory, on a per unit basis.

Unit cost of item is a Standard Value irrespective of value of a receipt

of that item to inventory.

Each receipt of material to inventory updates the unit cost of the item

received.

Unit Cost of Item is not updated upon Receipt of Item.

Issues from inventory use the current average cost as the unit cost. Issues from inventory use the pre-determined standard cost as the

unit cost.

or buy items, it is !eighted average of the actual procurement cost or buy items, it is pre-determined, irrespective of actual

procurement cost

or ma"e items, it is !eighted average of the cost of all resources

and materials consumed.

or ma"e items, it is pre-determined, irrespective of cost of all

resources and materials consumed.

g g

-racle +verage (osting-racle *tandard (osting

5alue inventory and transact at a moving

average cost

5alue inventory and work in process balances

at a predetermined cost

'aintains the average unit cost with each

transaction

'oving average cost is not maintained

%erform extensive cost simulations usingunlimited cost types

3etermine prot margin based on an AactualA

cost method 3etermine prot margin based on projected

costs

'easure the organizationBs performance

against historical costs

'easure the organizationBs performance

based on predened product costs

%erform extensive cost simulations usingunlimited cost types


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%ump


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Driver Gear: Component 1 Manufactured

%ump+ssembly

3river )ear 3riven )ear)ear &ody

Driven Gear: Component Manufactured

Gear Bod!: Component " #urc$ased

#ump %ssembl!: &inis$ed Goods %ssembl!Manufactured

tems, 3river )ear, 3riven )ear, )ear &ody, %ump +ssly

are dened"

3ening of 2esources, assiging the resource unit cost


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g , g gand assigning the -verhead to that resource"


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3ening the 3eparments and assiging the resources to


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those departments"+lso assiging the rates to the overheads dened in the2esources"


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3ening the 2outing for the manufactured items andi i d f d hi i


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assiging resource used to manufactured this item"

Driver Gear: Component 1 ManufacturedRouting ResourceDepartment-p> #urning 0athe > #urning-pC 'illing 'illing '8c 'illing

Driven Gear: Component ManufacturedR ti R


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Routing ResourceDepartment-p> #urning 0athe > #urning-pC 'illing 'illing '8c 'illing

#ump %ssembl!: &inis$ed Goods %ssembl!M f t d


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ManufacturedRouting ResourceDepartment-p> +ssembly +ssembly +ssembly-pC #esting #est 2ig #esting

3ening the &ill of 'aterial for the inished )oods+ bl


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+ssembly#ump %ssembl!: &inis$ed Goods %ssembl!Manufactured

Bill of Material 't!3river )ear >3riven )ear >)ear &ody >

3ening 'aterial cost and 'aterial -verhead cost forthe purchased tem )ear &ody


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the purchased tem )ear &ody

tem cost for manufactured item, 3river )ear" Dere'aterial and 'aterial -verhead costs are dened #he


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'aterial and 'aterial -verhead costs are dened" #he2esource cost and the overhead cost will be includedduring (ost 2oll up, from the cost dened in the2esource and 3epartment respectively"

tem cost for manufactured item, 3riven )ear" Dere'aterial and 'aterial -verhead costs are dened #he


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'aterial and 'aterial -verhead costs are dened" #he2esource cost and the overhead cost will be includedduring (ost 2oll up, from the cost dened in the2esource and 3epartment respectively"

tem cost for manufactured item and inal +ssembly,%ump +ssly Dere only 'aterial -verhead cost is


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%ump +ssly" Dere only 'aterial -verhead cost isdened" #he (omponents cost, 2esource cost and theoverhead cost will be included during (ost 2oll up, fromthe cost dened in the 2esource and 3epartmentrespectively and cost rolled up for the (omponents"

2unning the ull cost 2oll up concorent re!uest


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(ost 2oll up report


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(ost 2oll up report


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SCM Presentation22 Costing

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