Cost Structure (Oracle Cost Management)


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Cost Structure

A cost structure is the collection of definitions and methods used to cost inventory, bills of material, and work in process. The cost structure is composed of:

Organizations

Cost organizations and shared costs

Cost elements

Sub-elements

Activities

Basis types

Distribution to the General Ledger

Inventory Organizations

In Oracle Manufacturing, each inventory organization must have a cost structure that you define. Organizations can have their own cost structure or can share attributes of a similar cost structure. See: Organization Parameters Window.

Before you set up Inventory, Bills of Material, or Work in Process, examine the current cost structure of your organization(s) to determine which costing features and functions to use.

Cost Organizations and Shared Costs

You can share costs across standard cost organizations as long as the child cost organizations use only Inventory. You cannot share costs across average costing organizations.

The two item attribute controls, Costing Enabled and Inventory Asset Value determine whether you share costs. If you plan to share costs across standard costing organizations, set the control level for these attributes to the item level. The organization that holds the costs is called the "cost master organization."

Costs are maintained by the cost master organization and shared by the child cost organizations. All reports, inquiries, and processes use the shared costs and you cannot enter costs into the child cost organizations.

Note: The cost master organization can be a manufacturing organization using Work in Process.

You can also set up average cost organizations even if you share standard costs with another group of organizations. The average and standard costing organizations can share the same item master organization. However, the average cost organization is its own cost master organization.

For each organization to create and maintain its own costs, set the control level for Costing Enabled and Inventory Asset Value item attributes to the item/org level. Even if each organization holds its own costs, they can share the same common item master. See: Defining Items.

Cost Elements

Product costs are the sum of their elemental costs. With inventory standard and average costing, only the material and material overhead cost elements are used. With manufacturing standard and average costing, you can also use the resource, overhead, and outside processing cost elements. See: Inventory and Manufacturing Costing Compared.

Cost elements are defined as follows:

Material The raw material/component cost at the lowest level of the bill of material determined from the unit cost of the component item.

Material Overhead The overhead cost of material, calculated as a percentage of the total cost, or as a fixed charge per item, lot, or activity. You can use material overhead for any costs attributed to direct material costs. If you use Work in Process, you can also apply material overhead at the assembly level using a variety of allocation charge methods.

Resource Direct costs required to manufacture products, calculated as the 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. Resources can be people (labor), machines, space, or miscellaneous charges.

Overhead The overhead cost of resource and outside processing, calculated as a percentage of the resource or outside processing cost, as a fixed amount per resource unit, or as a fixed charge per item or lot passing through an operation. Overhead is used as a means to allocate department costs or activities. For example, you can define multiple overhead sub-elements to cover both fixed and variable overhead, each with its own rate. You can assign multiple overhead sub-elements to a single department, and vice versa.

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 fixed amount per outside processing resource unit, or the standard resource rate times the standard units on the routing operation. To implement outside processing costs, you must define a routing operation, and use an outside processing resource.

Sub-Elements

If you are using manufacturing costing, you can use sub-elements as smaller classifications of the cost elements. Each cost element must be associated with one or more sub-elements. Define sub-elements for each cost element and assign a rate or amount to each one. You can define as many sub-elements as needed.

Material Sub-Elements Classify your material costs, such as plastic, steel, or aluminum. Define material sub-elements and assign them to item costs. Determine the basis type (allocation charge method) for the cost and assign an appropriate amount. See: Defining Material Sub-Elements.

Material Overhead Sub-Elements Define material overhead sub-elements and assign them to item costs. Determine the basis type for the cost and define an appropriate rate or amount, such as purchasing, freight, duty, or material handling. See: Defining Overhead.

Resource Sub-Elements Define resource sub-elements. Determine the basis type for the cost and define an appropriate rate or amount. Each resource you define is a sub-element, can be set up to charge actual or standard costs, and may generate a rate variance when charged. See: Defining a Resource.

Overhead Sub-Elements Define overhead sub-elements and assign them to your item costs. Determine the basis type for the cost and define an appropriate rate or amount. Overhead sub-elements are applied in the routing and usually represent production overhead. You can define overheads based on the number of units or lot moved through the operation, or based on the number of resource units or value charged in the operation. See: Defining Overhead.

Outside Processing Sub-Elements Define outside processing sub-elements. Determine the basis type for the cost and define an appropriate rate or amount. This sub-element is associated with the outside processing cost element and represents service provided by suppliers. Each outside processing resource 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. See: Defining a Resource.

Activities

An action or task you perform in a business that uses a resource or incurs cost. You can associate all product costs to activities. You can define activities and assign them to any sub-element. You can also assign costs to your activities and build your item costs based on activities. See: Overview of Activity-Based Costing.

Basis Types

Use basis types to determine how costs are assigned to the item. Each sub-element must have a basis type, as follows:

Item

Used with material and material overhead sub-elements to assign a fixed amount per item, generally for purchased components. Used with resource, outside processing and overhead sub-elements to charge a fixed amount per item moved through an operation.

Lot

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 standard lot size for material and material overhead sub-elements. For routing steps, the cost per item is calculated by dividing the fixed cost by the standard lot quantity moved through the operation associated with a resource, outside processing, or overhead sub-element.

Resource Value

Used to apply overhead to an item, based on the resource value earned in the routing operation. Used with the overhead sub-element only and usually expressed as a rate. The overhead calculation is based on resource value:

Resource Units

Used to allocate overhead to an item, based on the number of resource units earned in the routing operation. Used with the overhead sub-element only. The overhead calculation is based on resource units:

Suggestion: You may optionally use resource units and resource value to earn material overhead when you complete units from a job or repetitive schedule.

Total Value

Used to assign material overhead to an item, based on the total value of the item. Used with the material overhead sub-element only. The material overhead calculation is based on total value:

where this level equals the cost added at the current level of an assembly.

Activity

Used to directly assign the activity cost to an item. Used with the material overhead sub-element only. The material overhead calculation is based on activity:

Cost Transfer and Distribution to the General Ledger

All costs are maintained by cost element. You can use organization parameters to choose how to transfer cost distribution to the general ledger. If you choose to define separate accounts for each cost element for your subinventories and WIP accounting classes (if you use Work in Process), you get an elemental distribution in your general ledger. If you choose, you can assign the same account to one or more cost elements and Cost Management consolidates the value of those elements before passing the value to the general ledger.

Contents

Index

Glossary

Library

Material	The raw material/component cost at the lowest level of the bill of material determined from the unit cost of the component item.
Material Overhead	The overhead cost of material, calculated as a percentage of the total cost, or as a fixed charge per item, lot, or activity. You can use material overhead for any costs attributed to direct material costs. If you use Work in Process, you can also apply material overhead at the assembly level using a variety of allocation charge methods.
Resource	Direct costs required to manufacture products, calculated as the 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. Resources can be people (labor), machines, space, or miscellaneous charges.
Overhead	The overhead cost of resource and outside processing, calculated as a percentage of the resource or outside processing cost, as a fixed amount per resource unit, or as a fixed charge per item or lot passing through an operation. Overhead is used as a means to allocate department costs or activities. For example, you can define multiple overhead sub-elements to cover both fixed and variable overhead, each with its own rate. You can assign multiple overhead sub-elements to a single department, and vice versa.
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 fixed amount per outside processing resource unit, or the standard resource rate times the standard units on the routing operation. To implement outside processing costs, you must define a routing operation, and use an outside processing resource.

Material Sub-Elements	Classify your material costs, such as plastic, steel, or aluminum. Define material sub-elements and assign them to item costs. Determine the basis type (allocation charge method) for the cost and assign an appropriate amount. See: Defining Material Sub-Elements.
Material Overhead Sub-Elements	Define material overhead sub-elements and assign them to item costs. Determine the basis type for the cost and define an appropriate rate or amount, such as purchasing, freight, duty, or material handling. See: Defining Overhead.
Resource Sub-Elements	Define resource sub-elements. Determine the basis type for the cost and define an appropriate rate or amount. Each resource you define is a sub-element, can be set up to charge actual or standard costs, and may generate a rate variance when charged. See: Defining a Resource.
Overhead Sub-Elements	Define overhead sub-elements and assign them to your item costs. Determine the basis type for the cost and define an appropriate rate or amount. Overhead sub-elements are applied in the routing and usually represent production overhead. You can define overheads based on the number of units or lot moved through the operation, or based on the number of resource units or value charged in the operation. See: Defining Overhead.
Outside Processing Sub-Elements	Define outside processing sub-elements. Determine the basis type for the cost and define an appropriate rate or amount. This sub-element is associated with the outside processing cost element and represents service provided by suppliers. Each outside processing resource 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. See: Defining a Resource.