(CHL and PER) Calculating Inventory Adjustment and Actual Cost

This chapter provides an overview of the inventory adjustment and actual cost calculation process and discusses how to:

• (CHL and PER) Enter indirect costs, bill of material information, and actual costs.

• (CHL and PER) Update the localized cardex.

• (CHL and PER) Inquire on localized cardexes.

• (CHL and PER) Print the inventory ledger.

• (CHL and PER) Set up the system for inflation adjustments for raw materials and resale goods.

• (CHL and PER) Calculate inventory adjustments for raw materials and resale goods.

• (CHL) Calculate the inflation adjustments for WIP and FG.

(CHL and PER) Understanding the Inventory Adjustment and Actual Cost Calculation Process for Chile and Peru

Calculating inventory adjustment and actual cost includes functionality from the JD Edwards EnterpriseOne Inventory Management, JD Edwards EnterpriseOne Manufacturing, JD Edwards EnterpriseOne Product Data Management, and JD Edwards EnterpriseOne Advanced Cost Accounting systems.

For the year for which you make year-end adjustments, you must run the inventory inflation adjustment and actual cost calculation processes for raw materials and resale products.

(CHL) For Chile, you must also run the processes for work in progress (WIP) and finished goods (FG).

Actual Costs

In order to calculate actual cost, products must comply with this setup:

Additionally, these assumptions apply:

• The actual cost calculation process is used only for discrete production and is not used for continuous production.

• Products have the same setup in all branch/plants. The actual cost calculation is made according to the product costing level.

• The actual cost is calculated according to Method 02 (weighted average cost).

• Batch programs run by the actual cost process must be run from the Actual Cost Process Header program (P76H6001).

These programs and systems have been localized to meet Chilean and Peruvian legal requirements for the actual cost calculation of products in progress and manufactured products:

• JD Edwards EnterpriseOne Advanced Cost Accounting system information interface to the Item Cost Component Add-Ons (F30026) table.

• The program that creates an actual bill of materials according to the period production in which the process is being run.

• The Actual Cost Calculation of Products in Progress and Manufactured Products program.

• The Localized Cardex Update program according to the actual cost calculation of products in progress and manufactured products.

• The program that generates a journal entry by the cost difference of inventory and goods sold, between the actual cost and that registered by the system as standard cost.

Actual cost calculation by weighted average cost of WIP and FG is complex due to the large number of variables that affect the cost of a manufactured item. Variables include the materials actually used to produce the item, the labor cost used, production time, labor expenses, machinery cost, machine hours, and overheads such as electricity and power.

Example: Weighted Average Cost (WAC)

To calculate the actual cost of products in progress and manufactured products, it is necessary to obtain the unit cost of raw materials. This unit cost is obtained from the weighted average cost of the item according to the Actual Item ASOF File (F76H6112) table. If, for example, you want to obtain the actual cost of products in progress and manufactured products for period 11, you must obtain the weighted average cost of raw materials for period 11 from the F76H6112 table, as in this example:

The system calculates the unit cost of the raw material xx, the value USD 4.7 for the calculation of products in progress and manufactured products. Such value does not update the F4105 table; it is used only for the purpose of calculating the actual cost of products in progress and manufactured products. The as-of calculated unit cost was used for raw materials since the unit cost in the F4105 table at the time of the actual cost calculation is not necessarily the raw material cost corresponding to the run period.

The actual cost calculation process involves running two batches:

• The first batch corresponds to the Actual Cost Simulation report (R76H6812).

  This batch program updates the actual cost calculation and simulates those in the F30026 table, but does not update the F4105 table with the simulated cost. This batch is similar to the Cost Simulation (R30812) program and has the same processing options.

  Note. You must run the Actual Cost Simulation program when working with Method 02 (weighted average cost). It is recommended that you do not modify the processing options for the Actual Cost Simulation program.

• The second batch corresponds to the cost generation, or freezing, of actual costs obtained from the Item Actual Cost Component (R76H6835) program.

  This batch may be run in proof or final mode. The final mode freezes the cost in the F30026 table, updates the F4105 table with the unit cost calculated for products in progress and manufactured products according to the 02 weighted average cost costing method, and updates the F76H6105 table. This batch is similar to the R30835 cost freezing standard program and has the same processing options though it does not update the accounting.

  Note. Both batches must be run for Method 02 (weighted average cost). It is recommended that you do not modify the processing options for the Actual Cost Simulation - Build (R76H6812) program.

It is important that the localized As Of process be run to enable the system to obtain the appropriate unit cost of raw materials.

(PER) Overhead Allocation

The JD Edwards EnterpriseOne standard functionality of the JD Edwards EnterpriseOne Advanced Cost Accounting system is used to calculate the tracking of indirect manufacturing costs by product. the JD Edwards Enterprise One Advanced Cost Accounting system performs overhead allocation, or cost object tracking. For this reason, the scope of this localization consists in sending the costs obtained by product through the JD Edwards EnterpriseOne Advanced Cost Accounting system to the F30026 table.

The allocation of these cost components of products in progress and manufactured products must be performed through the JD Edwards Enterprise One Advanced Cost Accounting system for the period in which the actual cost process is run:

• Actual labor expenses

• Actual machinery costs

• Actual costs

  All costs considered necessary can be distributed in order to obtain the cost of products in progress and manufactured products, such as electricity costs.

Depending on the setup used for the expense allocation in the JD Edwards Enterprise One Advanced Cost Accounting system, the results of the expense allocation by item is recorded in the F1602 table or in the F1642 and F16421 tables. The localization of overhead allocation consists of sending information from those files to the F30026 table.

The JD Edwards Enterprise One Advanced Cost Accounting system provides a broad functionality to perform the expense allocation per item. Through the JD Edwards Enterprise One Advanced Cost Accounting system, a unit cost must be obtained by product cost concept.

See Updating Item Costs.

Prerequisites

Before you calculate inventory adjustments and actual cost, you must complete the setup tasks in these sections discussed in the Using Inventory Inflation Adjustment chapter:

See Processing Options for Trial Balance By Object Report (R094121).

See Setting Up Constants.

(PER) Before sending overhead information to the F30026 table:

• Verify that the overheads allocation has been performed in the JD Edwards Enterprise One Advanced Cost Accounting system.

• Verify that overheads allocation is performed by product.

• Verify that the relationship between account and cost type is set up.

• Verify that the indirect cost of the actual cost process are set up.

Legal Requirement – Chile

According to Section 30° of the Chilean Revenue Act that refers to inventory valuation, the valuation method adopted for a year determines the inventory value at the end of that year notwithstanding the adjustment set forth in section 41. The method you select must be maintained for a minimum period of five consecutive business years.

Legal Requirement – Peru

According to Section 62° of the Rent Tax Act, goods valued at acquisition or production cost must uniformly apply the same valuation method or methods from year to year.

According to Section 35° of the Rent Tax Act Regulations, most companies must keep a standard cost system that valuates their goods to actual cost. The taxpayer must provide the report and the technical studies that support the application of the cost system when required by SUNAT (Superintendencia nacional de administración tributaria).

Common Fields Used in This Chapter

(CHL and PER) Entering Indirect Costs, Bill of Material Information, and Actual Costs for Chile and Peru

This section provides overviews of indirect costs, bills of material, and actual costs; lists prerequisites; lists the forms used to enter indirect costs bill of material information, and actual costs; and discusses how to Set processing options for Overheads for Actual Cost Process Header (P76H6001).

Understanding Indirect Costs

Records from the F1602, F1642, and F16421 tables must meet these conditions in order to be selected:

• Every selected record must have an associated product.

  The system obtains the product from the cost object where it is kept or from the Item Cost Code field.

• Every selected record must have a valid branch/plant.

  If the branch/plant is not in any cost object of the record, it must be entered manually in the screen header.

• Every selected record must have an associated cost in the period column where the actual cost is being processed.

  For example, if period 12, 2003 is being processed, the 721431 item must have an associated cost for period 12.

• The account/cost type relationship must be set up.

The records you select through this application are sent to the F76H6002 and F76H6003 tables. After the system updates these tables, select either Indirect Cost Proof Mode or Indirect Cost Final Mode from the Work With Item Cost Component WF form. If you select proof mode, the F76H6004 table is updated. If you select final mode, the F76H6004 and F30026 tables are updated.

Understanding Actual Bills of Material

Generate the actual bill of materials of the items manufactured within the period in which the actual cost calculation process is run, thus obtaining the actual consumptions of their components.

Any product in progress or product manufactured by a standard procedure has a specific bill of materials that indicates the component quantities needed to manufacture a certain item. Standard bills of materials are located in the F3002 table and typically have a bill type of M.

The actual bill of materials calculation process completes the F3002 and F76H6008 tables and generates a PDF file containing a detailed list of units manufactured by item.

Note. The actual bill of materials generation may be run as many times as necessary, provided the last actual cost calculation process has not been run. Each new process run deletes the records generated in the F3002 table for the specified bill type and also deletes the record in the F76H6008 table.

To calculate the actual bill of materials, all products in progress and manufactured products production entries from work orders that meet these conditions:

• Selected work order branch/plants must belong to a transactional company that belongs to a legal company.

• The required date (DRQJ field from the F4801 table) or work order end date (STRX field from the F4801 table) is compared with the actual cost process run in the period. Work order dates are selected for the calculation provided they are within the period.

• Work orders meet the status entered into the actual cost process header.

• Selected work orders meet the document type and work order type specified in the setup.

• Products with a stock type different from R in the Item Master are taken into account.

  Note. To calculate the actual bill of materials, the system converts everything to the primary unit of measure (UM).

Understanding Actual Costs

Run the cost simulation to verify the costs that have been generated thus far. Then, run the Actual Cost Generation process in proof or final mode. When you run the process in final mode, it updates the F76H6007, F30026, and F4105 tables according to Method 02 (Weighted Average Cost).

Prerequisites

Before generating the actual bill of materials:

• Verify the actual bill of materials generation process setup.

• Verify that the indirect cost calculation has been performed.

• Verify that the order type and allowed WO type relationship is set up.

Forms Used for Entering Indirect Costs, Bill of Material Information, and Actual Costs

Setting Processing Options for Overheads for Actual Cost Process Header (P76H6001)

Processing options enable you to specify the default processing for programs and reports.

Indirect Cost

Actual Bill of Material

GL Generation

(CHL and PER) Updating the Localized Cardex for Chile and Peru

This section provides an overview of the localized cardex and lists the forms used to update the localized cardex.

Understanding the Localized Cardex

Use the Updating the Localized Cardex and Accounting process to update the F76H611 table with the actual costs calculated for products in progress and manufactured products. The process also makes an adjustment journal entry. Be sure to take into account the difference between the cost accounted to standard cost and the F0911 table new actual cost of the items.

You must have run the actual cost calculation process in final mode prior to running the Cardex and Accounting update process (R76H611).

The Cardex and Accounting update process updates all the records in the F76H611 table that meet these conditions:

• The branch/plant of the cardex transaction belongs to a transactional company that belongs to a legal company.

• Products in progress and manufactured products are processed with Method 07 as main costing method of sales and inventories.

  Raw materials and resale products are not processed since they are calculated by their actual cost in the standard way.

• The accounting dates of cardex transactions must be within the run period of the actual cost calculation.

Updating the localized cardex is critical because the inventory ledger obtains item movements and balances from the F76H611 table.

The program creates a journal entry to indicate the difference between the inventory value and the cost of goods sold by the cost change of the item. This example illustrates a journal entry with a value greater than that of the inventory and the AAIs used to create it:

Important! To update the cardex and accounting, run the R76H611 batch program in proof or final mode. The proof mode may be run as many times as needed. The final mode cannot be changed. The R76H611 batch program has no processing options and must be run from the P76H6001 program.

When you run the R76H611 program in proof mode, the system generates a PDF file containing a detail of cost differences between the F4111 table and the F76H611 table, taking into account the actual cost calculated by the process. It indicates the entries to be generated and the accounts on which the accounting charge will be performed.

When you run the program in final mode, the system generates a PDF file similar to that of the proof mode. In addition, it generates the document number and batch number and updates the F76H611 table with the actual cost. It also creates journal entries taking into account the difference in cost in the F0911 table. Then you can post the batch generated by the process.

Form Used to Update the Localized Cardex

(CHL and PER) Printing the Inventory Ledger for Chile and Peru

This section provides an overview of the inventory ledger and discusses how to: run the inventory ledger.

• Run the Inventory Ledger program.

• Set processing options for Inventory Ledger (R76H6540).

Understanding the Inventory Ledger

The objective of the inventory ledger is to reflect for each item the initial balance, the inventory movements, and the final balance for the period. All movements are valued according to their unit. You must run total cost, indirect cost, and actual cost processes in final mode in order to run this process. The report may be run as many times as necessary.

To generate inventory ledgers, the process goes through the F76H6112 and the cardex F76H611 according to processing options and data selection parameters.

Data Selection

In addition to selecting by legal company (using a processing option), use data selection to specify whether the ledger is for one or many plants, for one or many items, or for one or many values of the category code defined in the processing option.

If you do not enter data selection, the report lists all inventory movements for those plants that make part of the transactional companies of the legal company selected in the processing option.

The report is divided into sections:

• Plant.

• Product type (raw material, product in progress, manufactured product and resale product).

• Item code.

• Initial and final balance for cuts and total level.

(PER) Inventory Ledger

According to Peruvian legislation, an inventory ledger must be generated on an annual basis at the closing of each business year. You can generate an inventory ledger after:

• The actual cost and inventory adjustment processes have been run in final mode.

• The localized As Of generating (R76H6542) program and the localized As Of generating (R76H397) program for previous years have been run.

In order to issue an inventory ledger you should perform these tasks:

• Set up items.

• Run the Localized As Of Generating program.

• Generate Initial Balance in the Localized As Of.

• Run the Actual Cost process in final mode.

• Run the indirect cost process in final mode.

• Issue the inventory ledger.

Running the Inventory Ledger

(CHL) Select Inventory (G76H41), Inventory Ledger.

(PER) Select Inventory (G76P41), Inventory Ledger.

Setting Processing Options for Inventory Ledger (R76H6540)

Processing options enable you to specify the default processing for programs and reports.

General

(CHL and PER) Calculating Inventory Inflation Adjustments for Raw Materials and Resale Goods for Chile and Peru

This section provides an overview of inventory adjustment for raw materials and resale goods, and discusses how to:

• (CHL) Enter indexes and exchange rates.

• Generate the Localized As Of report.

• Set processing options for the Localized As Of report.

• Generate the Initial Balance in the Localized As Of report.

Understanding Inventory Adjustments for Raw Materials and Resale Goods

You must run the inventory inflation adjustments for raw materials annually at year end. The processes are based on these assumptions:

• The stock of raw materials or resale products existing at the end of the balance is adjusted to its replacement cost to the specified date.

• The stock of raw materials must be set up in the system by Method 02 (weighted average cost) as the primary costing method.

  Goods must be valued by the weighted average cost as provided by the Chilean legislation.

• The replacement cost calculation is treated differently for domestic and imported origin raw material or resale products.

• All companies define the business year as January through December.

Setting Up Item Coding

You must set up the country of origin for each branch/plant relationship to determine whether it is an imported or domestic item.

If the country of origin is different from the country code defined by the company, the item is imported. If they are equal, the item is domestic.

AAIs for Inflation Adjustments

Set up the 3910 and 3911 AAIs.

Indexes

Inventory adjustment maintains the inflation adjustment indexes. Indexes are identified by a code, for example, adjustment code in UDC (76A/CA).

Note. Indexes must not be changed or deleted after they are used for an adjustment.

Exchange Rates

Exchange rates are a standard function of the JD Edwards EnterpriseOne Inventory Management system.

Note. Exchange rates must not be changed nor deleted after they are used for an adjustment.

The Item Ledger As Of Record Generation Report

The Item Ledger As Of Record Generation report (R76H6542) is based on the F76H611 table and generates the As Of transactions in the F76H6112 table.

You must run this report whenever the F76H611 table has been changed, as the F76H6112 table is used for the inventory adjustment calculation.

This report summarizes parallel cardex movements (the F76H611 table) by period in the F76H6112 table.

The Create Missing As OF Record Report

The Create Missing As OF Record report (R76H397) generates records in the F76H6112 table and is based on the F76H611 table.

This report adds records to new fiscal year beginnings that have not had any stock movement during the year. It generates a record in the F76H6112 table for the new fiscal year and completes the initial balance fields with the same quantity and amount that corresponds to the previous balance.

(CHL) Forms Used to Enter Indexes and Exchange Rates

Entering Indexes and Exchange Rates for Chile

Access the Adjustment Indexes form.

Generating the Item Ledger As Of Record Generation Report

(CHL) Select Inventory Inflation Adjustment (G76H39), Item Ledger As Of Record Generation.

(PER) Select Inventory Inflation Adjustment (G76P39), Item Ledger As Of Record Generation.

Setting Processing Options for Item Ledger As Of Record Generation (R76H6542)

Processing options enable you to specify the default processing for programs and reports.

General

Generating the Create Missing As-Of Record Report

(CHL) Select Inventory Inflation Adjustment (G76H39), Create Missing As Of Record.

(PER) Select Inventory Inflation Adjustment (G76P39), Create Missing As Of Record.

Processing Options for Create Missing As-Of Record Report (R76H397)

Processing options enable you to specify the default processing for programs and reports.

General

(CHL) Calculating the Replacement Cost for WIP and FG for Chile

This section provides an overview of how the system calculates replacement costs and discusses how to:

• Set processing options for the Replacement Cost Process Header program (P76H6201).

• Calculate replacements costs for works in process (WIPG) and finished goods (FG) produced for the period.

• Calculate replacements costs for WIPG and FG with a balance but not produced.

• Update the item cost, item ledger, and generate journal entries.

• Set processing options for Replacement Cost Journal Entry (R76H6396).

Understanding the Replacement Cost for WIPG and FG Process

The fiscal authority in Chile requires that WIPG and FG that exist at the end of a reporting cycle be valued at their replacement cost. The replacement cost is calculated using the adjusted value of the raw materials and the cost of the labor for the items for the last month of production. The new calculated cost becomes the new unit cost for the item. The system generates a journal entry to reflect the cost difference between the new calculated unit cost and the historical cost.

To make inventory inflation adjustments, for the same period in time:

1. Execute the actual cost process for WIP and FG.

2. Execute the inventory inflation adjustment process for raw materials and resale goods that have a balance.

   The system calculates the adjustment for raw materials and resale goods that have a balance and those that do not have a balance. For items without a balance, the system does not update the item cost and the general ledger; the system stores the values in tables for later use. The system calculates and stores these values because the raw material values are used in the calculations for WIP and FG.

3. Execute the inventory inflation adjustment process for WIP and FG that have balances at the end of the period.

   If the WIP and FG had production in the period, the system uses the adjusted costs of the raw materials, the cost of labor, and the indirect costs for the period to calculate the inventory inflation adjustment.

   If the WIP and FG did not have any production in the period, the system calculates the inventory adjustment uses the historic actual cost multiplied by the consumer price index (IPC). The historic actual cost includes the cost of the raw materials, labor costs, machine costs, and indirect costs.

Important! You must execute the actual cost and inventory inflation adjustment processes in the order indicated to ensure data integrity. The system verifies that the actual cost and inventory inflation adjustments for raw materials were completed before enabling the execution of the inventory inflation adjustment process for WIP and FG, but the system does not validate the order in which you run the processes.

The system calculates the inflation adjustment for WIPG and FG that have a balance at the end of the specified period. You can execute the adjustment process in proof mode before completing it in final mode, and you can inquire on the new calculated costs.

Use these programs to calculate and update costs.

Replacement Cost Process Header (P76H6201)

Use the Replacement Cost Process Header program (P76H6201) to calculate the replacement cost for WIPG and FG produced in this period, and for WIPG and FG that were not produced in this period, but which have balances.

The Work with Replacement Cost Process header form displays the existing records in the F76H6201 table. You create new records for the F76H6201 table when you use the Add option on the form. When you add records, the system validates that the actual cost process and the inflation adjustment for raw materials was completed for the same period for which you calculate the replacement costs for WIPG and FG.

You also use the Replacement Cost Process Header program to launch the program that updates the item cost and item ledger (cardex) and to generate the journal entries that records the difference between the historical actual cost and the new calculated cost.

Item Replacement Cost Program

When you use the Replacement Cost Option in the Replacement Cost Process Header program, the system calls the Item Replacement Cost program (P76H6205) and enables you to view replacement costs for items by legal company, fiscal year, and period.

The Item Replacement Cost program enables you to launch programs in proof or final mode to calculate the replacement costs for items that were produced and for items that were not produced but which have balances. The system updates the item cost when you run the program in final mode.

Non Produced Item Replacement Cost Program

Use the Non Produced Item Replacement Cost program (R76H6395) to calculate the costs for WIPG and FG which were not produced in the period. This program reads the F76H6112 table and populates the F75H6205 table with the new cost, quantity, and amounts for the items. The program selects items that use cost method 07 and that have stock that was not produced during the period. It accumulates the quantity and amounts by the cost level and adjusts the cost by the inflation index. The system updates the item cost when you run the program in final mode.

Replacement Cost Journal Entry Program

Use the Replacement Cost Journal Entry program (R76H6396) to generate the journal entries that record the difference between the historical average cost and the new cost (replacement cost).

The Replacement Cost Journal Entry program selects all records in the F76H6205 table for the legal company, century, and period specified in the processing options of the Replacement Cost Header Process program.

For each selected record, the system:

• Calculates the adjustment amount.

• Accumulates the adjustment amount.

• When all selected records are processed in final mode, writes entries to the F0911 table for the accumulated amounts for each account.

  The system uses AAI 3910 for inventory and uses AAI 3911 for the adjustment amounts.

• When processed in final mode, updates the item ledger if the GL entry was not created as a reverse and the ledger type of the record is AA.

• Prints a report indicating the account number, debits, and credits for the selected records.

Forms Used to Create the Replacement Cost Process Header

Setting Processing Options for Replacement Cost Process Header (P76H6201)

Processing options enable you to specify the default processing for programs and reports.

G/L Generation

Calculating Replacements Costs for Work in Process Goods and Finished Goods Produced for the Period

Access the Item Replacement Cost form.

Select Calc. Produced Items - Proof from the Form menu to simulate the calculation of the replacement costs for works in process and finished goods produced for the period.

Alternatively, select Calc. Produced Items - Final from the Form menu to calculate the replacement costs for works in process and finished goods produced for the period. When you run the program in final mode, the system updates the unit cost of the item.

Calculating Replacement Costs for Work in Process Goods and Finished Goods With a Balance But Not Produced

Access the Item Replacement Cost form.

Select Cal. Non Produced Items - Proof from the Form menu to simulate the calculation of the replacement costs for works in process and finished goods that have a balance but which were not produced during the period.

Alternatively, select Cal. Non Produced Items - Final from the Form menu to calculate the replacement costs for works in process and finished goods that have a balance but which were not produced during the period. When you run the program in final mode, the system updates the unit cost of the item.

Updating the Item Ledger and Generating Journal Entries

Access the Replacement Cost Process form.

Select Update Cost & G/L Proof Mode from the Form menu to preview new item costs and journal entries that are created when you run the program in final mode.

Alternatively, select Update Cost & G/L Proof Mode from the Form menu to update the item ledger and create journal entries.

Setting Processing Options for Replacement Cost Journal Entry (R76H6396)

Processing options enable you to specify the default processing for programs and reports. For reports, processing options enable you to specify the information that appears on reports.

General