Previous	Next		Contents	Index	Glossary	Library

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 standard costing.

Prerequisites

   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 uncosted resource for scheduling and a costed resource for costing. The cost rollup/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. By cost type, you define a cost per unit of measure, and use the cost rollup/update process to change the pending rates to Frozen resource rates.

   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 rollup 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 rollup/update process to change the pending rates to Frozen overhead rates. See:

   Review routing and bill structures to confirm that costs will rollup properly. See: Overview of Bills of Material, Overview of Routings, and Bills and Cost Rollups.

   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 in the cost rollup 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 standard costing:

1. Run a summary audit to validate your structures.

After you have defined your bill and routing structures, items and unit costs, you should run the summary audits to ensure information integrity. These audits check for bill of material structures with no headers, valued items with no costs, and so on.

2. Perform cost rollup as appropriate to set initial standard costs. See: Rolling Up Assembly Costs.

With the initial cost rollup/update, you complete the setup of the manufacturing cost structure and begin normal processing, including purchase order receipts, material issues, job/schedule creation, shop floor moves, and so on. Later, you analyze, report, and distribute costs through the period close process.

Similar to work in process costing, the cost rollup does not cost the routings assigned to phantom assemblies. The bill of material phantom determines how the component is treated. If you are rolling up the phantom assembly, the cost of the routing is included in this level cost of the assembly. But, for the parent assembly, when the subassembly's supply type is Phantom, the routing costs from the lower level assembly are not included in the cost of the parent assembly. If you change the supply type and the subassembly is no longer a phantom, the parent assembly includes the lower level routing cost in the parent assembly's previous level costs.

3. Perform a cost update for manufacturing costing after rolling up assemblies. This revalues inventory and implements new costs. See: Updating Pending Costs to Frozen Standard Costs.

See Also