12 Understanding Cost Object Tracking in Sales Order Management

This chapter contains the following topics:

• Section 12.1, "Cost Object Tracking in Sales Order Management"

• Section 12.2, "Cost Object Information Entry in a Sales Order"

• Section 12.3, "Cost Object Information Updates During Sales Update"

12.1 Cost Object Tracking in Sales Order Management

You can capture cost object information when you enter sales orders and when you update sales order information. In the Sales Update program (R42800), the system captures cost object information that is useful for managerial accounting or activity-based costing.

12.1.1 Example: Cost Management in Distribution

As a bicycle distributor, Company 200 knows that it could associate both revenues and expenses with customers, product families, or marketing sales channels. However, the traditional accounting methods do not provide enough information for the company to analyze profitability by customer, product family, and marketing sales channel. The company wants to do the following:

• Determine which customers incur expediting charges.

• Associate sales promotion expenditures to customers and marketing sales channel.

• Attribute the cost of customer site visits to marketing sales channels.

• Reallocate computer (information technology) costs to marketing sales channels.

• Determine profitability for imprinting by customer and marketing sales channel.

This managerial accounting scenario is designed to analyze profitability by customer, product family, and marketing sales channel. Transactions originate from the following sources:

• Expenditures - Accounts Payable.

• Sales - Sales Order Management.

• Additional charges to customers for services - Accounts Receivable.

• Information technology (IT) chargebacks to marketing - Cost Analyzer.

• Shipping and handling services - Cost Analyzer.

The company sells bicycles with bags to wholesale and retail customers. The retail customers can be either specialty or discount stores. Often, discount stores order bicycles without the bags. Many times, when sales representatives are visiting customers during sales negotiations, they agree to do any of the following:

• Imprint a custom logo on the bicycle bag.

• Expedite shipping.

• Allocate cooperative advertising funds.

If the customer requests custom logo imprints on the bicycle bag, the company pays the supplier a nominal fee for the imprinting service. The company would like to identify customers and marketing sales channels that request the custom imprinting services and charge them for that service.

When the company receives the invoice for the custom logo imprint, it uses Accounts Receivable to charge for the service, based on the numbers of bags imprinted at a customer-negotiated rate per bag. The company wants to determine the profitability of the imprinting services by customer and marketing sales channel.

When a customer orders merchandise, the company charges standard shipping and handling changes, based on volume and weight. However, some of the bicycle shipments are expedited to customers after they purchase bicycles. When the company receives the actual freight charges, it considers them as part of the company's overall shipping costs without attributing them to a specific customer. The company wants to determine which customers incur the expediting charges because it believes that these costs might not be fully recovered when freight charges are included in the sale.

The marketing department is responsible for a variety of sales promotions throughout the year. Promotional costs are accounted for in general and administrative costs. Two types of promotions exist: general and specific.

Specific promotions are for:

• A product family.

• A marketing sales channel.

• A customer.

• A cooperative with a large customer.

Whenever possible, the company wants to identify and associate sales promotion expenditures directly to each customer and marketing sales channel.

The marketing and sales representatives often visit the customer. All expense reports for customer visits are charged to travel and entertainment. However, the company wants to associate the costs of the customer visits directly with each customer and marketing sales channel.

Each department in the company uses centralized computer services. IT allocates a portion of the computer costs back to each department, based on the number of hours that it is connected to the network. When the marketing department receives its monthly charges, it wants to reallocate a portion of the IT costs to each marketing sales channel, based on the number of marketing employees per marketing sales channel.

To determine profitability for customers, product families, and marketing sales channels, the company can use cost objects to identify customers, product families, and marketing sales channels. The company can then associate both direct and indirect sales and expenditures to cost objects.

The following graphic illustrates the distribution process.

Figure 12-1 The distribution process

Description of ''Figure 12-1 The distribution process''

12.2 Cost Object Information Entry in a Sales Order

To extract cost object information from a sales order, you can base driver information on any field in the Sales Order Detail File table (F4211). For example, you can base driver volumes on the number of sales orders per customer. Because any field can be defined in the cost object rules, you do not need to enter additional cost object information in a sales order. The system uses flex accounting rules to retrieve cost object information with the specified data item and the associated cost object rule for the application.

See Also: "Understanding Sales Order Detail Information" in the JD Edwards EnterpriseOne Applications Sales Order Management Implementation Guide.

12.3 Cost Object Information Updates During Sales Update

The Update Customer Sales program groups transactions into different types of batches for posting to journals. To properly record cost object information, all customer sales, inventory and COGS journal entries should be posted in detail.

When you run the Update Customer Sales program, the system groups transactions into the following batches:

Batch	Description
Customer sales (batch type IB)	Posts the sales, cost of goods sold, and inventory entries to the customer sales journal. The system creates batch type IB when the summarization processing options in the Sales Update program (R42800) is set to write GL entries in summary or detail.
Inventory/COGS (batch type G)	Posts to the inventory/COGS journal. The system creates batch type G for inventory and COGS entries when the summarization processing option in the Sales Update program (R42800) is set to summarize COGS and inventory entries to separate batches.

If you set the processing options in the Sales Update program (R42800) to purge sales header and detail information to history, base your driver calculation detail rule on the Sales Order History File table (F42119).

If you have activated the processing option to use flex accounting, the system searches the flex accounting rules to determine how to populate cost objects.