Understanding Cost Methods and Item Costs

You must provide cost information for each item that you use so that the system can track inventory costs. When you define an item with cost level 2 or 3, you specify the cost method that the system uses to determine the cost of an item for sales transactions, inventory transactions, and purchase orders in the Branch/Plant Constants program (P41001). You can override the values that you defined in the branch/plant constants for a particular item at the item branch/plant level. For example, you can specify that the system use the weighted average cost method to determine the inventory cost for an item and use the last-in cost method to determine the item's unit cost for purchase orders.

You can set up the JD Edwards EnterpriseOne Manufacturing Accounting system for these costing types:

Costing Type	Description
Standard costing	Use cost method 07 (Standard). This method is useful for items that are manufactured in volume with low variety and have stable costs. When you use cost method 07 for the parent item, the system uses only method 07 for all components, outside operations, and so forth.
Actual costing	Use either cost method 02 (Weighted Average) or cost method 09 (Manufacturing Last Cost). When you assign either cost method 02 or 09 to the parent item, the system uses this value to update the Ledger field (LEDG) in the Work Order Master Tag table (F4801T) when work orders are generated. Therefore, the components on the parts list for the parent item can have any valid cost method (UDC 40/CM). The actual costing methods apply to discrete items only. Cost method 02 is useful for costs that change often. Use this method when you do not want to revalue on-hand inventory when the work orders are completed, but at a different time. Cost method 09 is useful for items that are engineered or manufactured to order and have costs that change often and significantly. Use this method when you want to revalue the inventory each time that you run the work order completion programs. Note: Because JD Edwards EnterpriseOne software does not support actual costing for process and configured items, the system issues an error message if you attempt to define an actual cost method for a process item (stocking type R) or a configured item (stocking type C).

Costing Type

Description

Standard costing

Use cost method 07 (Standard). This method is useful for items that are manufactured in volume with low variety and have stable costs. When you use cost method 07 for the parent item, the system uses only method 07 for all components, outside operations, and so forth.

Actual costing

Use either cost method 02 (Weighted Average) or cost method 09 (Manufacturing Last Cost). When you assign either cost method 02 or 09 to the parent item, the system uses this value to update the Ledger field (LEDG) in the Work Order Master Tag table (F4801T) when work orders are generated. Therefore, the components on the parts list for the parent item can have any valid cost method (UDC 40/CM). The actual costing methods apply to discrete items only.

Cost method 02 is useful for costs that change often. Use this method when you do not want to revalue on-hand inventory when the work orders are completed, but at a different time.

Cost method 09 is useful for items that are engineered or manufactured to order and have costs that change often and significantly. Use this method when you want to revalue the inventory each time that you run the work order completion programs.

Note: Because JD Edwards EnterpriseOne software does not support actual costing for process and configured items, the system issues an error message if you attempt to define an actual cost method for a process item (stocking type R) or a configured item (stocking type C).

For every cost method that you assign to an item, you must specify an item cost. For actual costing methods you can either enter an initial cost or let the system update it with the last manufactured cost.

Note: You can remove a cost method for an item if it is no longer applicable. If you try to remove the sales and inventory or purchasing cost method, the system displays a warning message. The system does not delete the cost method, but updates it to a cost of zero.