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Again, note that some of these steps were previously covered in the Setup Prerequisites and that they are covered again here to highlight the setup requirements that are specific to manufacturing average costing.

Prerequisites

   Set the CST:Average Costing Option profile option to Inventory and Work in Process. See: Cost Management Profile Options and Security Functions.

Attention: You can only use manufacturing average costing if you are using the new cost processor.

   Define bills of material parameters. See: Defining Bills of Material Parameters.

This ensures that bill and routing information (resource, outside processing, and overhead cost elements) is accessible when you define item costs and define overhead.

   Define resources. See: Defining a Resource.

You define resource sub-elements by creating resources, departments, bills, and routings with Bills of Material.

Resources can be costed or not costed; and, since you can have multiple resources per operation, you could use an not costed resource for scheduling and a costed resource for costing. The cost update process and accounting transaction processing ignore uncosted resources.

You can set up the resource to apply charges at the actual rate or standard rate. If you apply actual rates and specify that the resource charges at standard, you create rate variances. If you apply actual rates and specify that the resource does not charge at standard, you collect actual costs in the job/schedule and recognize a variance at the end of the job or schedule. You can also set up a fixed amount for each unit earned in the routing step.

For each resource the charge type determines whether the resource is for internal (labor, machine, etc.) or outside processing. Use PO Move and PO Receipt charge types for outside processing. Each resource has its own absorption account and variance account.

   Define departments. See: See: Defining a Department

   Assign resources to departments. See: Creating a Routing.

For capacity planning and overhead assignment purposes, each resource must be assigned to one or more departments. Once a resource is assigned, you can select it when you define a routing.

   Define overheads and assign to departments. See: Defining Overhead.

The cost processor uses the assigned basis type to apply the overhead charge, and assigne the activity to the calculated overhead cost. You can define pending rates and use the cost update process to specify the pending rates as the Average Rates cost type.

   Review routing and bill structures. See: Overview of Bills of Material and Overview of Routings.

   Control overheads by resource.

For overheads based on resource units or resource value, you need to specify the resources the overhead is based on. You can then charge multiple resources in the same department for the same operation, while still earning separate overhead for each resource. If you do not associate your overheads and resources, you do not apply overhead or charge resource-based overhead in Work In Process.

   Confirm that the WIP parameters, Recognize Period Variance and Require Scrap Account are set as required.

   Confirm that your Work in Process accounting classes and their valuations and accounts are properly set up. See: WIP Accounting Classes, Defining WIP Accounting Classes, and WIP Valuation and Variance Accounts.

If you use the same account numbers for different valuation and variance accounts, Cost Management automatically maintains your inventory and work in process values by cost element. Even if you use the same cost element account in a given subinventory or WIP accounting class, Oracle recommends you use different accounts for each and never share account numbers between subinventories and WIP accounting classes. If you do, you will have difficulty reconciling Inventory and Work in Process valuation reports to your account balances.

   To set up manufacturing average costing:

1. In addition to setting the TP: INV:Transaction Processing Mode profile option in Oracle Inventory to On-line processing. See: Inventory Profile Options.

You must also set the following WIP transaction processing profile options to On-line:

• TP:WIP:Completion Transactions Form

• TP:WIP:Material Transactions Form

• TP:WIP:Move Transaction

• TP:WIP:Operation Backflush Setup

• TP:WIP:Shop Floor Material Processing

See: Work in Process Profile Options.

2. Define rates for your resources and associate these resources and rates with the Average rate cost type. See: Defining a Resource.

Unlike under standard costing, charging a resource defined as a Standard rate resource does not create rate variances. For each resource the charge type determines whether the resource is for internal (labor, machine, etc.) or outside processing. Use PO Move and PO Receipt charge types for outside processing. Each resource has its own absorption account and variance account.

3. Define overheads and assign to departments. See: Defining Overhead.

For each overhead subelement, define a rate of amount in the cost type you have specified as the average rates cost type. Overheads with a basis type of Resource Units or Resource Value use the actual transaction resource amount or hours to calculate the overhead amount. The cost processor uses the assigned basis type to apply the overhead charge and assigns the activity to the calculated overhead cost. You can define pending rates and use the cost update process to specify the pending rate as the Average Rates cost type.

4. Define Work in Process parameters. See: See: Defining WIP Parameters.

You can use the Require Scrap Account parameter to determine whether a scrap account is mandatory when you move assemblies into a scrap intraoperation step. See: Move Transaction Parameters.

You must set the appropriate average costing parameters -- Default Completion Cost Source, Cost Type, Auto Compute Final Completion, and System Option -- to determine how resources and completions are charged. See: Average Costing Parameters.

How these parameters are applied is explained in the Assembly Completion Transaction and Resource Transaction sections.

5. Define Work in Process accounting classes. See: WIP Accounting Classes and Defining WIP Accounting Classes.

Accounting classes determine which valuation and variance accounts are charged and when. You can define the following elemental accounts for WIP accounting classes that are used with average costing: material, material overhead, resource, outside processing, overhead, material variance, resource variance, outside processing variance, overhead variance, bridging, and expense accounts. See: WIP Valuation and Variance Accounts.

Note: If you use the same account numbers for different valuation and variance accounts, Cost Management automatically maintains your inventory and work in process values by cost element even if you use the same cost element account in a given subinventory or WIP accounting class. Oracle recommends you use different accounts for each and never share account numbers between subinventories and WIP accounting classes. If you do, you will have difficulty reconciling Inventory and Work in Process valuation reports to your account balances.

6. Define subinventories and subinventory valuation accounts.

The five Valuation accounts and the Expense account are defined at the organization level. The valuation accounts apply to each subinventory and intransit within the organization. They cannot be changed at the subinventory level under average costing. The expense account defaults to each subinventory within the organization and can be overridden. You can choose a different valuation account for each cost element, or use the same account for several or all elements. How you set up your accounts determines the level of elemental detail in the General Ledger and on Inventory valuation reports. See: Defining Subinventories.