Oracle Process Manufacturing Cost Management User's Guide Release 12.1 Part Number E13655-04 | Contents | Previous | Next |
This topic provides an overview of Oracle Process Manufacturing (OPM) Cost Management.
This chapter covers the following topics:
All material and resource transactions in a “process enabled” Inventory Organization are costed using OPM Costing. The primary functions of OPM Costing are:
Develop and Maintain costs using the following cost methods:
Standard Costs
Actual Costs
Lot Costs
Valuing material and resource transactions in
Production
Shipping
Inventory
Purchasing
Inventory Valuation
Create journals in OPM Subledger using Oracle Subledger Accounting
Monitor and simulate costs using reports and inquiries
Note: Item and inventory transaction information are maintained in Oracle Inventory.
The Cost Management Process flow is as follows:
Complete the basic setup
Use standard, actual, or lot cost calculation methods to develop costs.
After reviewing and finalizing costs, perform period-end processing (month-end close) to value inventory and transfer journals to General Ledger.
The graphic describes the Cost Management process as explained below:
Standard Cost
Establish raw material, resource, and overhead costs and run the Standard Cost Rollup process. View and verify the costs. If the costs are correct, then complete all inventory transactions for the period and run the Inventory Close and Cost Update processes in the final mode. Run the OPM Accounting Preprocessor and Create Accounting process to create accounting entries in the OPM Subledger. Use the Create Accounting process again to export the Subledger Journals to Oracle General Ledger.
Actual Cost
Record and verify transactions. Run the Actual Cost process, view, and verify the costs. If the costs are correct, then run the Inventory Close and Cost Update processes in the final mode. Run the OPM Accounting Preprocessor and Create Accounting process to create accounting entries in the OPM Subledger. Use the Create Accounting process again to export the Subledger Journals to Oracle General Ledger.
Lot Cost
Record and verify transactions. If the costs are correct, then run the Lot Cost process in the final mode. View and verify the costs. Run the Create Accounting process to create accounting entries in the OPM Subledger. Use the Create Accounting process again to export the Subledger Journals to Oracle General Ledger.
OPM Cost Management lets you define costs by:
Inventory Organization
Item
Cost Calendar and Period
Cost Types
Cost Component Class
Analysis Code
Using OPM Costing, you can maintain different costs for an item at different Inventory Organizations. If several organizations have the same cost, the Cost Organization Association can be used to share the same cost across these organizations, by eliminating the need for maintaining duplicate data.
Define costs for individual items
Define costs for each period in the cost calendar.
OPM Costing supports different Cost Types that can be used to monitor and analyze costs. It has the ability to store cost of a single item in multiple cost types at any given point of time, though only one is used for inventory valuation in OPM Subledger.
The cost methods supported are:
Standard Cost
Actual Cost
Lot Cost
The unit cost of an item is usually broken down into several buckets that are attributed to various sources that form the basis of the cost, for detailed tracking and analysis purposes. Cost Component Classes identify individual buckets or component costs that make up the total cost, for example, direct material costs, freight costs, labor costs, production or conversion costs and so on. Any number of cost component classes can be defined and used to break down item costs. The cost component classes are classified into 5 different elements or usages: Material, Resource, Overhead, Expense Allocation, and Standard Cost Adjustment types.
An individual component cost identified by a particular cost component class can be further broken down using cost analysis codes for more granular tracking of costs. The cost analysis codes are used to group component costs from multiple cost component class types to provide an alternate view of the total cost.
When you select the standard cost calculation, you define the cost of ingredients in each inventory organization during a specific period of time. The cost information remains static during each defined time period. OPM Costing calculates the standard costs of items using the Standard Cost Rollup, based on recipes, formulas, and routings defined in the OPM Product Development application. The cost of ingredients, by-products, and resources are apportioned to the co-products based on the cost allocation factor set up for the co-products in the formula details in the OPM Product Development application. With standard costs, you can enter a cost directly in the cost details. For by-products, the costs are not calculated by Standard Cost Rollup or Actual Cost process.
A positive cost of by-product means that you either sell or dispose it at a profit. A positive cost for a by-product reduces the cost of the co-products. The cost of the by-product is apportioned using the cost allocation factors that are defined in recipe and are applicable to co-products also.
A negative cost of by-product means that you spend money to dispose off the by-product. For example, waste treatment costs for any toxic by-product. In this case the cost of the co-products are increased appropriately.
Standard cost lets you define the costs for items, formulas, formula ingredients, recipes, and resources used during the production process.
For standard costs:
Establish the formulas, routings, and recipes
Run the Cost Rollup process
The cost of a product is based on:
Formulas, recipes, and routings
Resource costs
Overheads
This is a more dynamic method of calculating Item costs based on actual inventory and resource transaction data. The following are the business transactions that are used to calculate the actual costs:
Purchasing receipts including Freight and Special Charges estimated on the PO, returns, and corrections of receipts
Paid Invoices
Batch ingredient consumption and resource usage
Opening inventory balances
Cost overheads
Cost adjustments
General Ledger Expense allocations for indirect overheads
All material transactions including internal order receipts
The cost allocation factors are determined from those set up in batch details in OPM Process Execution. When a batch is created, the cost allocation factors are defaulted from those set up in the formula, but you can edit them for the batch. With actual costs, as you cannot enter a cost directly using cost details, you can enter an actual cost adjustment entry to get a cost created for a by-product.
OPM also captures freight and special charges on a purchase order.
Allocating General Ledger expense is a method by which you can distribute the indirect expenses of manufacturing (such as administrative and general expenses) to item costs. The balances in the expense accounts are distributed to item(s) based on either fixed percentages or dynamically derived using other General Ledger account balances, for example, statistical balances that track the item quantities or resource usages.
Lot costing, also known as Specific Identification Type costing, lets you calculate and store costs at the lot level. That is, each lot has a unique cost associated with it and it retains this cost until the entire lot is consumed. The lot costs are computed on a perpetual basis.
Lot costing lets you store unique costs for each lot.
You can track the cost of a lot from its creation through all consumptions.
You assign values to inventory and resource transactions.
Transactions in OPM are mapped to the general ledger accounts you define in Subledger Architecture (SLA) application. Costs of inventory organization items are frozen for update to the subsidiary ledger.
OPM lets you revalue your inventory based on a different cost value (cost type) within the same period. You can also revalue inventory from one period to the next.
OPM Cost management calculates the cost of inventory during each stage of production:
Captures actual materials
Generates variances
If you flag OPM to calculate purchase price variance (PPV) on purchase orders, OPM calculates the variance and generates a general ledger account distribution for it.
Costs of items shipped are also frozen prior to update of the transactions to the OPM subsidiary ledger.
OPM Cost Management provides several reports and inquiries to monitor and analyze costs:
Item Cost report
Allocation report
Subledger reports
Lot Cost History report
OPM Cost Management provides the following simulations, and lets you establish "what if" scenarios:
Cost Type and Elements
Cost Formulas, Recipes, and Routings
Indicate the affect a change in a formula or production routing has on your costs
Prices, Labor Rates, and Overheads
Indicate what impact new labor rates, raw material prices, and overheads have on your standard costs
Cost Rollups
Determine the proposed cost of a new product
Weighted Average Costing
The following diagram illustrates using multiple cost types, where cost type A is used for general ledger posting, cost type B is being used to project the selling price for items, and cost type C is calculated using actual data to develop new cost standards.
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