Example: Determining Your Cost Structure Strategy

This method is employed for environments where all items use the same cost method. Additionally, if the financial reporting requirements are simple, you can utilize the single book/single profile setup. For example, if all the items use the same costing method for all business units and you want to use one cost book, the steps to set up PeopleSoft Cost Management are simple and straightforward:

• Define a single cost book.

• Define a single cost profile.

• Define a single standard cost group and assign the book and cost profile to that cost group.

• As items are created at the SetID level, assign them the standard cost group.

• Define the PeopleSoft Inventory business units, and point to a corresponding PeopleSoft General Ledger business unit. Add the book to the PeopleSoft Inventory business units and point it to the primary ledgers that are in the default ledger groups for the PeopleSoft General Ledger business unit. If you manufacture items by using actual or average costing, also enter a cost type on the inventory business unit.

Now you are ready to add items to the PeopleSoft Inventory business unit. As you add items, the cost profile appears as the default value. No further set up is necessary.

This option allows you to select a costing method on an item-by-item basis. This method may be utilized in environments where you might want to track the cost of selected items by lot or serial ID and others by FIFO or LIFO actual costs and still others by using a weighted average. In this instance, you need to create cost profiles for all the costing methods you want to employ and standard cost groups to categorize the items according to the various costing methods. To do this, perform these steps:

• Define a single cost book.

• Define the cost profiles.

• Define standard cost groups to categorize items according to the costing methods that are employed. Assign the book to each cost group. Select the appropriate cost profile for the cost group.

• As items are created at the SetID level, assign them to the appropriate standard cost group.

• Define the PeopleSoft Inventory business units, and point to a corresponding PeopleSoft General Ledger business unit. Add the book to the PeopleSoft Inventory business units and point it to the primary ledgers in the Default Ledger Groups for the PeopleSoft General Ledger business unit. If you manufacture items by using actual or average costing, also enter a cost type on the inventory business unit.

Now you are ready to add items to the PeopleSoft Inventory business unit. As you add items, the cost profile appears as the default value. No further set up is necessary.

This diagram illustrates how to select a cost method on an item-by-item basis.

This scenario allows you to cost an item differently in each business unit. You could, for example, use the standard cost method for all of the items that are in one business unit and FIFO actual in another. To set up this scenario:

• Define two or more books at the SetID level. Each book could represent a costing method. By using the preceding example, you could set up a book called FIN_A and FIN_B.

• Define the different costing profiles that are used in each business unit. Examples are STD and FIFO.

• Define a standard cost group. You could create a single group or multiple groups, depending on whether all items use the same costing method within a business unit.

• Assign both books to the standard cost group, and then assign a profile to each book. For example, cost group MAKE is assigned Book FIN_A and FIN_B. FIN_A uses the STD profile and FIN_B uses the FIFO profile.

• Define the items at the SetID. Assign the items to a standard cost group (MAKE in this example).

• Assign a book to a PeopleSoft Inventory business unit depending on the costing method that is used in the business unit. For this example, FIN_A is assigned to BU A; FIN_B is assigned to BU B.

• Add items to each business unit. As items are added to BU A, they are assigned a costing profile of STD. As items are added to BU B, they are assigned a costing profile of FIFO.

This diagram illustrates how to cost an item differently in different business units.

To support varying requirements for financial, government, and management reporting, you can maintain multiple books within a PeopleSoft Inventory business unit, with each book based on different costing methods. You can cost an item differently in the business unit's financial reporting book than you do in the tax or management reporting books. For example, you could use the actual LIFO method cost for tax reporting, and at the same time use the periodic average cost method for customer profitability analysis. When you use simultaneous costing methods, you generate accounting entries for each book.

The setup for using multiple books within a single business unit is similar to the setup in the preceding example. However, both books are defined in a single PeopleSoft Inventory business unit. As items are added to the business unit, they inherit the profiles for all the books. When transactions for the items are costed and the Accounting Line Creation process (CM_ALC) is run, accounting entries are created for each book using the appropriate costing method.