Understanding Frozen Cost Update

After you perform simulated rollups to determine the effect of any changes, you can update the frozen costs with simulated values by running the Item Cost Component - Frozen Update program. Most companies run this program at the beginning of a new fiscal year to create their manufacturing costs for the next fiscal period.

You can set a processing option to run a work-in-process revaluation automatically when you update frozen costs. In this case, the WIP Revaluation program (R30837) runs for all items that are processed through the Item Cost Component - Frozen Update program. If any item is flagged for cost change in the Item Cost table, any open work order that contains this item is revalued, along with any work orders to which the parent item was issued. This logic is carried through to the highest-level parent item.

Note: This program uses the costs that were generated by the most recent version of the Cost Simulation program. If you have changed information since the last simulated cost rollup, those changes will not be reflected by the frozen update.

(Release 9.2 Update) The Frozen Cost Update program uses the master routing for the item from the Routing Master table if all of these conditions are met:

The Master Routing field in the Manufacturing Constants form is set to Y for the branch.
You have defined a cross-reference item for the parent item on the master routing.
You must define the cross-reference item with a cross-reference type of MR. The Address field must be blank.
You have defined an item routing for the cross-reference item.
You have specified a branch/plant value for the parent item.
The parent item and the cross-reference item must exist in the same branch/plant.

The system checks for a cross-reference for an item in the branch/plant. If it finds a cross-reference, the program uses master routing. If it does not find a cross-reference, the system uses the routing defined for the parent item and checks the next item in the branch/plant for a cross-reference. The absence of any cross-reference items in the same branch as the parent items implies that master routing does not exist for the selected branch/plant.

The frozen cost update uses the costs that were generated by the Cost Simulation program to perform these actions:

Update unit costs in the Item Cost table for the cost method selected.
Update frozen costs in the Item Cost Component Add-Ons table for the cost method selected.
Update labor and overhead rates in the Work Center Rates table (F30008).
Print report totals by company, branch/plant, and GL category code.
For on-hand balances, create an Item Balance (IB) record in the Item Ledger table (F4111) if the cost method selected matches the sales and inventory cost method for an item.
For on-hand balances, write journal entries to the Account Ledger table (F0911) in either detail or summary format, creating batch type NC (Frozen Cost Update).
The system creates an item ledger record when the cost method that is selected for update is the sales and inventory cost method. The item ledger record indicates a change in inventory value for the updated items. The number of item ledger records that are written depends on the cost level of the item, which is defined in the Item Master table (F4101). For example, items at cost level 2 have an item ledger record for each branch/plant at which they are defined because costs can differ by branch/plant.

The program creates journal entries in either detail or summary format in amounts that match the item ledger records. Thus, the program maintains integrity between the Item Ledger table and the Account Ledger table. Use the Item Ledger/Account Integrity report (R41543) to verify this integrity.

These steps make up the process flow for updating frozen costs:

The program creates a journal entry only if an item ledger record has been written.
An item ledger record is written only if an item cost ledger record has been updated.
An item cost ledger record is updated only if a cost component record has been updated.

The program accesses these automatic accounting instructions (AAIs) to obtain the object account:

AAI table number	Description	Use
4134	Inventory	Debit to show increase in item cost. Credit to show decrease in item cost.
4136	Expense or cost of goods sold (COGS)	Debit to show expense or loss. Credit to show income or gain.

This table identifies information about detail and summary journal entries:

Journal Entry Type	Description
Detail journal entry	Select detail format for the program to create matching debit and credit account-ledger records for every item ledger record that is created. Use the detail format when you want a detailed audit trail. However, consider that the potential volume is large and could cause disk space problems. The program can generate several journal entries by cost component for the same item and branch, depending on how you set up the AAIs.
Summary journal entry	Select summary format for the program to create debit and credit records by subtotals of company, general ledger class code, and transaction type. Use the summary format to reduce the amount of detail in the general ledger. You can still run a report to provide a detailed audit trail.

Journal Entry Type

Description

Detail journal entry

Select detail format for the program to create matching debit and credit account-ledger records for every item ledger record that is created. Use the detail format when you want a detailed audit trail. However, consider that the potential volume is large and could cause disk space problems.

The program can generate several journal entries by cost component for the same item and branch, depending on how you set up the AAIs.

Summary journal entry

Select summary format for the program to create debit and credit records by subtotals of company, general ledger class code, and transaction type. Use the summary format to reduce the amount of detail in the general ledger. You can still run a report to provide a detailed audit trail.

The program produces this output:

Output	Description
Error messages	The program produces error messages if it finds any general ledger errors while formatting the journal entries. Correct any errors and run the Item Cost Component - Frozen Update program (R30835) again. To determine whether error messages exist, review the workflow messages for submitted jobs.
Item Cost Ledger Update report (R30834)	Displays the effect of the inventory revaluation based on the changes that were made to the cost revision records for the inventory items. You can print all items or only those that have a cost change. You can run the report in proof mode or final mode. The report provides this information: Old and new costs for each updated item. Variances between old and new costs. Item quantity on hand. Net amount of change in cost. Summary of the amount changed by item general ledger category. GL exception errors. Whether GL transactions have been written. Either GL subtotals by company and GL class code or GL class code only.

Output

Description

Error messages

The program produces error messages if it finds any general ledger errors while formatting the journal entries. Correct any errors and run the Item Cost Component - Frozen Update program (R30835) again. To determine whether error messages exist, review the workflow messages for submitted jobs.

Item Cost Ledger Update report (R30834)

Displays the effect of the inventory revaluation based on the changes that were made to the cost revision records for the inventory items. You can print all items or only those that have a cost change. You can run the report in proof mode or final mode. The report provides this information:

Old and new costs for each updated item.
Variances between old and new costs.
Item quantity on hand.
Net amount of change in cost.
Summary of the amount changed by item general ledger category.
GL exception errors.
Whether GL transactions have been written.
Either GL subtotals by company and GL class code or GL class code only.