Calculating Activity Costs in General Ledger
Once you have modeled your activities, processes, cost objects, and resources, you can use General Ledger and Cost Management to implement your activity cost model.
The following method enables you to map between the activity-based and traditional financial reporting methods, and explain any differences between the two.
Prerequisites
To calculate activity costs in General Ledger:
1. Define a General Ledger budget for actual activity-based costs.
Define a budget in General Ledger to hold accounting information representing activity-based costs. By using a General Ledger budget for your activity-based costs, you can tie activity-based costs to financial reporting by running reports that compare actual activity-based costs to actual costs based on traditional cost methods. Example budgets:
2. Add resource accounts to chart of accounts.
Set up a general ledger account for each resource where the cost is to be allocated to activities. For some resources, you may already have general ledger accounts that correspond exactly to a specific activity. For other resources, however, your existing accounts may be too detailed or not detailed enough, in which case you need to add the appropriate accounts.
For example, during your activity analysis you may have identified an information systems (IS) resource that you consume when you perform several different activities. In your general ledger, however, you have a single general ledger account to capture all Finance and Administration expenses. You need to create a new general ledger account for IS expenses and then either start tracing costs to the new account or allocate Finance and Administration expenses to the new IS expense account, based on some beneficial factor.
3. Trace or allocate costs to resource accounts.
To get costs into your new resource accounts, you need to either start posting expenses to those accounts directly or assign costs to those accounts using allocations. In either case, use the mass budgeting feature of General Ledger to move or allocate actual account balances to your FY95ABC budget account balances. For some accounts, your mass budgeting allocation simply copies the actual balance to the FY95ABC budget balance. For other accounts, however, you reclassify the general ledger actual balance for one account to several accounts in the FY95ABC budget.
You now have the proper amount in the FY95ABC budget for an account corresponding to each resource. Now set up your activity accounts and allocate resource amounts to them.
4. Add activity accounts to chart of accounts.
Use General Ledger Mass Budgeting to allocate resource costs to your activities. Define a general ledger account for each activity. You will probably never post actual amounts to these accounts, but only use them as mass budgeting allocation target accounts in your FY95ABC budget.
5. Post activity performance totals to activity accounts
To compute activity unit costs, record in General Ledger the total number of times you performed each activity. You can post a statistical budget journal (STAT currency) in General Ledger to your FY95ABC budget that contains a line for each activity account and an amount (quantity) indicating the number of times you performed each activity. For example, your statistical budget journal entry might include a line for the Purchasing activity account with an amount equal to the number of purchase order lines you created in the last period.
6. Allocate costs to activity accounts.
You now define Mass Budgeting Allocations that reallocate resource account balances in your FY95ABC budget to your activity accounts. This step transfers balances from your resource accounts (in your FY95ABC budget) to your activity accounts. So after this step, your activity account balances in your FY95ABC budget represent the total cost of each activity for the period.
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7. Report activity unit costs.
You can now use the Financial Statement Generator (FSG) to create a report that lists total cost for each activity (the FY95ABC budget balance), your total number of occurrences (the statistical balance), and the unit cost (total cost divided by total occurrences).
See Also
See: Oracle General Ledger Topics for information about Oracle General Ledger, account setup, budgeting, and statistical journals.