Creating Inventory Adjustments and Variances for Landed Costs
Once the voucher is matched and posted, the actual landed costs can be sent to PeopleSoft Cost Management. The differences between the estimated and actual landed costs are calculated based on the fluctuations in the cost and the exchange rates. These differences can be applied as adjustments to the item cost for actual or average cost items or can be applied as variances to variance accounts for standard cost items.
To calculate landed cost adjustments or variances:
Run the Landed Cost Extract process (LC_EXTRACT) to link the voucher landed costs back to the PO and receipt costs.
This process retrieves from PeopleSoft Payables the landed costs, including material costs, subcontracted costs, and other miscellaneous landed costs. The miscellaneous landed costs are categorized by the miscellaneous charge codes. Material costs, including subcontracted costs, are categorized by the material cost element. The vouchered costs are recorded into the CM_MATCHED_COST table.
Review and correct in exceptions from the Landed Cost Extract process.
As needed, manually close any receipt lines or charges that are not fully matched or fully matched but not within the miscellaneous charge code tolerances.
For subcontracted services, run the Production Close process (SFS1100) to set the production ID to closed for accounting.
For standard cost items, receive the subcontracted PO and complete the operation in PeopleSoft Manufacturing (subcontracted services are on the operations list). The subcontracted service is costed at standard cost. The variance between the standard cost, PO, and voucher amounts are recorded in a variance account and do not update the cost of the subcontracted item.
For actual cost items, you also receive the subcontracted PO and complete the operation in PeopleSoft Manufacturing. Once the voucher is posted to CM_MATCHED_COST, the difference between the estimated subcontracted cost on the purchase order and the actual subcontracted cost on the voucher is calculated and flows into WIP and to finished goods. This difference is posted as an adjustment to the subcontracted cost using the transaction group 664 (Subcontracted Cost) in the following step.
Run the Transaction Costing process (CM_COSTING) to calculate the variances and cost adjustments. This process is run from the Cost Accounting Creation process page. For actual and average costed items that are produced in PeopleSoft Manufacturing, the Transaction Costing process can calculate the variances for subcontracted services between PO costs and voucher costs.
Run the Accounting Line Creation process (CM_ALC) to create accounting entries to record the variances and cost adjustments. This process is run from the Cost Accounting Creation process page.
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Page Name |
Definition Name |
Usage |
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LC_RUN_CNTRL |
This application engine process retrieves landed cost data from vouchers, POs and receivers, and passes the data to PeopleSoft Cost Management. |
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AP_MESSAGE_LOG |
View error messages that are associated with previous landed cost extraction requests. |
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VCHR_LC_LOG |
View exceptions from the Landed Cost Extract process. |
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CM_LC_MANU_CLOSE |
View and enter details about landed costs that are applied to a receipt and the vouchers that are created to pay for them. Use this page to perform manual overrides, closing individual or all landed cost lines that are associated with the selected receipt line. |
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CM_LC_MANU_CLS_VC |
View voucher details for the selected landed cost that is applied to the receipt line. |
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CM_COST_REQ |
Use this run control process page to calculate the cost of transactions that have not yet been costed (CM_COSTING) and also to create accounting entry lines (CM_ACCTG) for these costed transactions. |
Use the Landed Cost Extract page (LC_RUN_CNTRL) to this application engine process retrieves landed cost data from vouchers, POs and receivers, and passes the data to PeopleSoft Cost Management.
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The Landed Cost Extraction module links all landed costs from vouchers, POs, and receipts, and passes this data for both material charges and landed cost miscellaneous charges to PeopleSoft Cost Management. The material costs, including subcontracted services, are categorized by the material cost element. The miscellaneous landed cost charges are categorized by the miscellaneous charge codes. This process is separate from the PeopleSoft Payables Matching process (AP_MATCHING), which matches merchandise vouchers with POs or receivers for that merchandise. However, even if you are not using miscellaneous landed costs, you must run this process to pass invoiced material costs to PeopleSoft Cost Management, where the material variances for price and exchange rates are computed and applied.
Note: In order to run Landed Cost Extraction, you must have PeopleSoft Payables, PeopleSoft Purchasing, and PeopleSoft Cost Management installed on the same database. For subcontracted services, you must also have PeopleSoft Manufacturing installed on the same database.
The Landed Cost Extract process does not pass the actual vouchered miscellaneous charges to PeopleSoft Cost Management until all the vouchers are created for the miscellaneous charge codes that are within a particular cost element. This avoids repeated or erroneous changes to the costs within PeopleSoft Cost Management.
Run the Landed Cost Extract process prior to running the Transaction Costing process (within the Cost Accounting Creation process).
The Landed Cost Extraction program processes inventory items by:
Flagging eligible vouchers (matched, posted and not yet processed by land cost extract process).
Eligible vouchers are regular, adjustment, reversal, and third-party vouchers.
Finding the corresponding receipts (not yet processed by the landed cost extract process) in the RECV_LN_DISTRIB, RECV_LN_DIST_LC, and RECV_LN_SHIP_LC tables.
Summing the vouchers with the same receiver line information (BUSINESS_UNIT, RECEIVER_ID, RECV_LN_NBR, RECV_SHP_SEQ_NBR).
Prorating the miscellaneous charges to the receiver lines based on the receiver accepted quantity.
The voucher line miscellaneous charge will be prorated based on QTY_RECV_APPLIED / sum of QTY_RECV_APPLIED for the voucher line.
Calculating the material unit costs.
Note: Life to date voucher amounts will include previously extracted vouchers, in addition to the vouchers selected in the current Landed Cost Extract run control. This helps to ensure accurate calculations of voucher costs by including associated vouchers. For example, a regular voucher and its associated debit memo voucher will be included in the voucher unit cost calculation.
CM_UNIT_COST_VO = Life to date RECV_VCHR_MTCH.MERCH_AMT_VCHR (converted to Inventory business unit base currency) / RECV_LN_SHIP.QTY_SH_ACCPT_SUOM.
CM_UNIT_COST_POVO = Life to date RECV_VCHR_MTCH.MERCH_AMT_VCHR (converted to Inventory business unit base currency using exchange rate on purchase order) / RECV_LN_SHIP.QTY_SH_ACCPT_SUOM.
CM_UNIT_COST_PO = RECV_LN_DIST.MERCH_AMT_BSE / RECV_LN_SHIP.QTY_SH_ACCPT_SUOM.
Calculating the miscellaneous charge unit costs.
CM_UNIT_COST_VO = Life to date RECV_VCHR_MTCH.MERCH_AMT_VCHR (converted to Inventory business unit base currency) / RECV_LN_SHIP.QTY_SH_ACCPT_SUOM.
CM_UNIT_COST_POVO =Life to date RECV_VCHR_MTCH.MERCH_AMT_VCHR (converted to Inventory business unit base currency using exchange rate on purchase order) / RECV_LN_SHIP.QTY_SH_ACCPT_SUOM.
CM_UNIT_COST_PO = RECV_LN_DISTRIB.MERCH_AMT_BSE / RECV_LN_DISTRIB.QTY_DS_ACCPT_SUOM.
Populating CM_MATCHED_COST record for material unit costs and miscellaneous charge unit costs by matching receipts and vouchered costs (CM_UNIT_COST_VO, CM_UNIT_COST_POVO, and CM_UNIT_COST_PO).
One row is created for each cost element of a receiver distribution line.
Populating CM_MATCHED_COST record for the subcontracted services for a production ID (PeopleSoft Manufacturing).
Populating CM_MATCHED_COST record for the excise duties, customs duties, and sales taxes for India.
The process matches the non-recoverable portion of these charges from third-party vouchers (PeopleSoft Payables) to the non-recoverable portion from the POs and receipts (PeopleSoft Purchasing).
Populating CM_RMATCH_COST record for return to vendor (RTV) adjustment vouchers.
Populates receiving shipment (RECV_LN_SHIP_VC) and distribution (RECV_LN_DIST_VC) tables with the actual vouchered miscellaneous charges so that you can report and inquire on this data.
Adds a line to the CM_MATCHED_COST record and the RECV_LN_DIST_LC record with a zero amount if a charge is vouchered which was not on the purchase order to alert analysts of a discrepancy between the expected and vouchered miscellaneous charges.
Updates the voucher and receiver tables by flagging the processed vouchers and receivers with the landed cost extracted flag.
When the Landed Cost Extract process is complete:
Use the Landed Cost Extraction - Messages page to view error messages that are associated with previous landed cost extraction requests.
If the system encounters exceptions during the Landed Cost Extraction cycle, you can view the exceptions on the Landed Cost Extract Exceptions page. The system generates exceptions if:
The high (ceiling) tolerances that are established on the Misc. Charge/Landed Cost Defn page are exceeded. If the low (floor) tolerances are not met, no exception is generated based on the assumption that there are more vouchers to come. An exception does not prevent further processing.
Other errors are found beside tolerance exceptions, including no conversion rate or other setup errors.
Correct any exceptions and rerun the Landed Cost Extract process.
Use the LC Manual Close (landed cost manual close) page (CM_LC_MANU_CLOSE) to view and enter details about landed costs that are applied to a receipt and the vouchers that are created to pay for them.
Use this page to perform manual overrides, closing individual or all landed cost lines that are associated with the selected receipt line.
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Use the LC Manual Close page to manually close receipt lines or charges that will not be fully matched. From this page, you can access a Landed Cost Manual Close-Voucher Detail page displaying all voucher line charges that are allocated to a receipt line charge. The Landed Cost Extract process only passes costs to PeopleSoft Cost Management once miscellaneous charges for cost elements are fully matched. This page lets users manually close charges that are not fully matched.
Use the Cost Accounting Creation page (CM_COST_REQ) to use this run control process page to calculate the cost of transactions that have not yet been costed (CM_COSTING) and also to create accounting entry lines (CM_ACCTG) for these costed transactions.
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Given the costs that are passed in from the Landed Cost Extract process to the CM_MATCHED_COST and CM_RMATCH_COST records, the Transaction Costing process (within the Cost Accounting Creation process) makes the necessary cost adjustments or variances for the landed costs. The Transaction Costing process is run from the Cost Accounting Creation process page. Calculations include:
For standard cost items, two variances are calculated: purchase price variance (PPV) and exchange rate variance (ERV). Together, the PPV and the ERV make up the total standard cost variance.
The PPV is the difference between the standard cost for the landed cost element and the actual landed costs from the matched, posted, and extracted voucher expressed in the PO exchange rate. Based on the timing of the voucher, the variance could be computed and posted in two parts. If the voucher is not available in the CM_MATCHED_COST record when the Transaction Costing process is run, then the system calculates the difference between the standard cost and the PO price. When the voucher becomes available, then the Transaction Costing process computes the difference between the PO price and the voucher price expressed in the PO exchange rate.
The ERV is the change between the exchange rate for landed costs on the PO and the exchange rate for landed costs on the voucher. This is calculated once the voucher is matched, posted, and extracted to the CM_MATCHED_COST record. An ERV occurs when the invoice for the purchased item is in a different currency than the inventory business unit's currency and the exchange rate between the two currencies changes between the time that you enter the PO and the time that you voucher the invoice.
For actual cost items, a cost adjustment is calculated for the difference between the landed costs on the PO and the landed costs on the voucher (that is matched, posted, and extracted to the CM_MATCHED_COST record). This adjustment includes changes in the exchange rate between the PO and voucher. The Transaction Costing process finds the original putaway (in TRANSACTION_INV) and updates the on-hand inventory stock and depletion records for the adjustment. The adjustment is posted based on the ChartField combinations that are used on the original entries.
For perpetual weighted average items and retroactive perpetual weighted average items, the cost adjustment (difference between PO price and voucher price including the exchange rate difference) are calculated and applied if the Apply Perpetual Average Adj check box is selected on the Cost Accounting Creation process page. The cost adjustment is added to the on-hand inventory stock. If the cost adjustment is based on more item units than are currently in on-hand stock, then the adjustment is proportionally applied to the on-hand inventory stock and the excess is written off to a write-off account.
For periodic weighted average items, the system lets users decide when to perform the calculations on a periodic basis. For the receipts that have been vouchered, the voucher amount is used. On the Cost Accounting Creation process page, select the Apply Perpetual Average Adjs check box to update the perpetual average costs to include price and exchange rate adjustments.
The system maintains a full history of all cost changes that are processed for inventory items.
If you select the Accrue Charge check box on the Misc Charge/Landed Cost Defn page, then the miscellaneous landed costs for that miscellaneous charge code are included in inventory value at putaway. When the difference between the PO and the voucher (both cost and exchange rate) are computed, the differences are handled based on the cost method:
Field or Control |
Description |
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Actual Cost Items |
The item's inventory value is adjusted for the difference, along with all depletions against the receipts. If you wish to write-off the cost adjustment rather than update the item's value, use the Writeoff PPV and ERV check box on the Cost Profiles page. Select this check box to record any differences between the purchase order price and the vouchered price in an expense account rather than catching up the adjustments with the inventory receipt and depletion transactions. |
Average Cost Items |
The average cost is adjusted (depending on the run control settings for transaction costing on the Cost Accounting Creation process page) and transactions are recorded to adjust the inventory balance. Depletion transactions are not adjusted. |
Standard Cost Items |
The item's inventory value is not adjusted for the difference. Standard cost is used for the item value. The difference between the standard cost, PO price, and voucher is recorded to a variance account using the ChartField combination (accounts) defined in the transaction accounting rules. |
If you select the Hold for Final Cost check box on the Cost Profiles page and run the Cost Accounting Creation process for transaction costing in midperiod mode, then the process waits for the matched cost from the invoice to record adjustments to the actual cost items and to record variances for the standard cost items. Costing of receipts and depletions is put on hold until the PO, receipt, and vouchers are matched and in to the CM_MATCHED_COST record, eliminating the need for variances. If you run the Cost Accounting Creation process for transaction costing in Regular mode, all transactions are costed by using the available cost, regardless of this check box setting.
Most vouchers are processed just one time, however, if corrections are necessary the corrected voucher amounts can be extracted and passed to PeopleSoft Cost Management as often as needed. The system is designed to continuously update the costs to the most current information as vouchers are updated.
Use the Cost Accounting Creation page (CM_COST_REQ) to use this run control process page to calculate the cost of transactions that have not yet been costed (CM_COSTING) and also to create accounting entry lines (CM_ACCTG) for these costed transactions.
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The Accounting Line Creation job records accounting entries for landed cost differences. This process is run from the Cost Accounting Creation process page. This application engine process retrieves the variances that are computed by the Transaction Costing process (also within the Cost Accounting Creation process page) and creates the accounting entries. These results are stored in the CM_ACCTG_LINE table. The Journal Generator process can then create the journal entries to post to the general ledger system.
If you select the Accrue Charge check box on the Misc Charge/Landed Cost Defn page, then the miscellaneous landed costs for that miscellaneous charge code are included in inventory value at putaway. When the variances are computed, the Accounting Line Creation process creates accounting entries to record the variances.