Set Up a Cost Profile

In the Setup and Maintenance work area, go to the following:

Offering: Manufacturing and Supply Chain Materials Management
Functional Area: Cost Accounting
Task: Manage Cost Profiles

Select Create from the Action menu to create a cost profile.

On the Create Cost Profile page, enter the basic cost profile information.

Field	Description
Cost Profile Set	Select a Cost Profile Set. Cost profiles use set-level definitions, and all cost organizations belonging to a set can share the same cost profile definitions.
Cost Profile	Name of the cost profile.
Description	An optional description of the cost profile.

Enter the accounting information.

Field	Description
Cost Method	Defines how the costing application calculates the transaction cost. The available cost methods are: Standard cost - Inventory is valued at a predetermined standard value. You track variances for the difference between the standard cost and the actual transaction cost and periodically update the standard cost to bring it in line with the actual costs. Actual cost - Tracks the actual cost of each receipt into inventory. When depleting inventory, the processor identifies the receipts that are consumed to satisfy the depletion, and assigns the associated receipt costs to the depletion. Perpetual average - The average cost of an item that's derived by continually averaging its valuation after each incoming transaction. The average cost of an item is the sum of the debits and credits in the inventory general ledger balance, divided by the on-hand quantity. Periodic average - The average cost of an item that’s derived by averaging its valuation for a specific period. A cost profile with periodic average cost method can be only used with a periodic average cost enabled cost book.
Quantity Depletion Method	Determines how the inventory quantity is depleted when costing inventory transactions. The costing application uses the first in, first out (FIFO) method. If the cost method is set to periodic average, then the depletion method is not applicable for costing.
Process Negative Quantity	Determines how to treat depletion of inventory when the depletion quantity exceeds the inventory on hand. When receipts are processed that correct the negative inventory state, Cost Accounting automatically resolves previously negative inventory. The available options are: Always - Apply the cost for the entire transaction, including negative balances. If the cost method is set to periodic average, then this is set to Always and can’t be changed. To zero - Apply cost only for quantity on hand, and hold the remaining shortfall until inventory is replenished. Never - Don't apply cost for the transaction until quantity is sufficient to cover the entire transaction.
Account Intravaluation Unit Transfers	Select this option to ensure that all transfers are costed and accounted, including subinventory and locator transfers. If the valuation unit is at inventory organization level and transfers or pick transactions occur at subinventory level, then select this option to cost such transactions. You must deselect this option only if you don't want to cost such transactions.
Account Intravaluation Unit Pick Transactions	Select this option if you want to process and account pick transactions that are within the valuation unit. The option is available only if you’ve selected the Account Intravaluation Unit Transfers option. If your inventory valuation is tracked at a lower level than the valuation unit and you want to get better performance from the cost processor, you can deselect this option.

Note: If you opt-in for the Use Enhanced Period Inventory Valuation and Gross Margin Reporting feature, all transfers between inventory organizations or subinventories are always costed and accounted even if the Account Intravaluation Unit Transfers option isn't enabled in the cost profile.

Define the valuation rules.

Field	Description
Valuation Structure Code	Select the control attributes used to define the cost of an item. You can maintain your cost calculation at any combination of the Cost Organization, Inventory Organization, Subinventory, Locator, Country of Origin, Project, Task, Lot, and Serial levels. If you have set the cost method to standard cost or periodic average cost, then the valuation structure must be at the level of Inventory Organization or Cost Organization. Costing doesn't support costs maintained in a more granular valuation structure, such as at the Subinventory or Lot level, for these cost methods. You can create multiple cost profiles with different cost methods for the purpose of cost planning. Depending on the valuation structure type, the cost profile is categorized as asset cost profile, expense cost profile, or consigned cost profile.
Cost By	Whether to use the primary UOM or the secondary UOM for costing.

Field

Description

Valuation Structure Code

Select the control attributes used to define the cost of an item. You can maintain your cost calculation at any combination of the Cost Organization, Inventory Organization, Subinventory, Locator, Country of Origin, Project, Task, Lot, and Serial levels.

If you have set the cost method to standard cost or periodic average cost, then the valuation structure must be at the level of Inventory Organization or Cost Organization. Costing doesn't support costs maintained in a more granular valuation structure, such as at the Subinventory or Lot level, for these cost methods.

You can create multiple cost profiles with different cost methods for the purpose of cost planning.

Depending on the valuation structure type, the cost profile is categorized as asset cost profile, expense cost profile, or consigned cost profile.

Cost By

Whether to use the primary UOM or the secondary UOM for costing.

Note: The Project and Task levels are applicable only if you have opted-in for and set up Project-Driven Supply Chain.

Define the work order valuation rules.

Field	Description
Provisional Completions	Determines the valuation method used for partial work order completions. For example, in a manufacturing work order for a total quantity of 100 units, the first 10 units are completed put into finished goods inventory. The cost of the work order won't be known until the entire work order is completed, but there needs to be a way to value the partially completed quantity. Once the work order has been completed and closed, the provisional valuation will be adjusted to the actual cost of the work order. The available options are: Value at last actual cost - Use the cost of the last receipt processed for the same item and for the same cost organization, cost book, and valuation unit. This option can be used when the cost method is set to Actual cost or Perpetual average. Value at perpetual average cost - Use the perpetual average cost that's effective when the partial work order completion is processed. This option can be used when the cost method is set to Perpetual average. Value at standard cost - Use the standard cost, if defined, for the item and valuation unit. If you haven't defined a standard cost for the item then the cost is set after the work order is closed. You can use this option to avoid write-off costs if you don't expect partial completions for your work orders. This option can be used when the cost method is set to Standard cost, Perpetual average, or Periodic average. Value at prior periodic average cost - Use the periodic average cost from prior period that's effective when the partial work order completion is processed. This option can be used when the cost method is set to Periodic average. Value at work order close - This option is available when the cost method is set to Actual cost or Perpetual average. When this option is used, partial completions aren't processed until the work order is closed. This option is recommended for work orders that have a short duration, thereby avoiding estimated provisional costs and cost adjustments. Value using accumulated work in process balances - This option is available when the cost method is set to Actual cost, Perpetual average, or Periodic average. When this option is used, the costs for product completions are calculated using the work in process balances. The Value using accumulated work in process balances option is used to estimate the cost for first time completions, if the costs can't be estimated using the otherwise set option.
Provisional Completion for Process Manufacturing	The available options are: Value at last actual cost - Use the cost of the last receipt processed for the same item and for the same cost organization, cost book, and valuation unit. This option can be used when the cost method is set to Actual cost or Perpetual average. Value at perpetual average cost - Use the perpetual average cost that's effective when the partial work order completion is processed. This option can be used when the cost method is set to Perpetual average. Value at standard cost - Use the standard cost, if defined, for the item and valuation unit. If you haven't defined a standard cost for the item then the cost is set after the work order is closed. You can use this option to avoid write-off costs if you don't expect partial completions for your work orders. This option can be used when the cost method is set to Standard cost, Perpetual average, or Periodic average. Value at prior periodic average cost - Use the periodic average cost from prior period that's effective when the partial work order completion is processed. This option can be used when the cost method is set to Periodic average. Value at work order close - This option is available when the cost method is set to Actual cost or Perpetual average. When this option is used, partial completions aren't processed until the work order is closed. This option is recommended for work orders that have a short duration, thereby avoiding estimated provisional costs and cost adjustments. Value using accumulated work in process balances - This option is available when the cost method is set to Actual cost, Perpetual average, or Periodic average. When this option is used, the costs for product completions are calculated using the work in process balances.
Operation Scrap Valuation	Determines when to account for scrap items. The available scrap valuation methods are: Value at work order close - Use this method if you don't want to see the approximate scrap costs in the general ledger and want to keep the entry adjustments to a minimum. This option isn't applicable if provisional completions is set to Value using accumulated work in process balances. Value immediately and at work order close - Use this method if you want to see an immediate approximation of the scrap cost amount in your general ledger. After the work order is complete and actual costs become known, the application can compute the correct scrap cost, post adjustments to the previous approximation. If the cost method is set to Periodic average, then the scrap valuation can be only set to Value immediately and at work order close. Value at cost cut off date and at work order close - Determines the boundary for managing period end. You can avoid generating approximate scrap costs during the period, but for work orders that are work in process at period end (not completed), Cost Accounting can generate approximate scrap accounting entries for financial reporting.
Operation Scrap Accounting	Determines whether the scrap value is included in the inventory value, or expensed.

Note: Although you can update the Provisional Completions and Provisional Completions for Process Manufacturing options in an existing cost profile, the changes will be applicable only for transactions that aren't already processed.

Enter the cost structure.

Field	Description
Cost Component Mapping Group	Maps incoming cost components to cost elements, which are used to cost transactions.
Analysis Mapping	User-defined grouping of cost elements for analysis purpose.

Define the transaction costing rules.

Field	Description
Receipt Without Cost	Specifies that for incoming receipts without a cost, the cost processor uses the first or last receipt layer cost for the actual cost method and average cost for the perpetual average and periodic average cost methods, if you've set up a default cost element.
Referenced RMA Cost	Specifies how the cost processor determines what cost to use for sales returns. The processor uses an average of the actual cost layers from the shipments on the original sales order. If the sales order consumed only one FIFO layer from inventory, then the actual cost of the shipment is used. If the sales order is fulfilled by multiple shipments, or a single shipment that consumed multiple FIFO layers, then the average cost is used. For periodic average cost method, the average cost of the original sales order is used.
Propagate Cost Adjustment	Whether to propagate cost adjustments down the supply chain to Cost of Goods Sold. This option is only applicable if the cost method is set to Actual cost.
Unreferenced RMA Receipt Cost	Specifies what cost to use for unreferenced sales returns. Existing Item Cost: The RMA receipt is costed using the existing item cost. In the case where a current cost is unavailable, the item is costed with zero cost, if you've setup a default cost element. Price on RMA Order: The RMA receipt is costed using the price entered on the RMA order excluding taxes.
Enforce Processing of Costs by Transaction Date	Select this option to enforce processing of costs by transaction date. If a transaction with an earlier transaction date isn't fully costed, then the create cost accounting distribution process won't process a subsequent transaction for the same item and valuation unit combination. This can be useful for dependent transactions, such as Transfer Order Issue and Transfer Order Receipt. However, do keep in mind that if a transaction isn't processed for an item and valuation unit combination, then all subsequent transactions for this combination won't be processed and will be held up. This can become critical during period close. This option is available for all cost methods, except standard cost and periodic average. You must set Process Negative Quantity to Always and deselect Propagate Cost Adjustment before you select this option. This option is enabled by default for new cost profiles.

You must keep in mind these points with reference to the Unreferenced RMA Receipt Cost option:

If you set this option to Price on RMA Order in an existing cost profile, all item cost profiles associated with the updated cost profile will use the RMA line price.
Only charges with price type as One time and charge subtype as Price on the RMA order are considered when costing the RMA receipt using this option. Recurring charges on an RMA order are ignored. The net sale price is used as the acquisition cost for the RMA receipt.
When you set this option to Existing Item Cost, then the RMA receipt for an item is costed at zero price, if it's the first transaction for the item in the valuation unit and if you have set up a default cost element. If you haven't set up a default cost element, then this transaction will be kept on hold awaiting a transaction cost to be staged for the valuation unit.
A kit that's made up of several items, the price on the RMA order is for the kit and not the individual items. However, the shipment and return receipt is created for each individual item and not the kit as a whole. In this case, if the option is set to Price on RMA Order, the RMA receipts for the individual items is costed at zero price.

Note: If a return is received in a cost organization that's different than the cost organization where the original shipment was costed, the RMA receipt is costed based on the value set for the Unreferenced RMA Receipt Cost option in the cost profile.

Set the summarization rules.

Field	Description
Summarize Cost Transactions for Serial Controlled Items	Enable this option if you want to summarize distributions created for inventory transactions of items that are serial tracked, but the associated valuation structure doesn't have the Serial costing attribute. The serial level costs can be summarized at the sub inventory or organization level, thereby improving the processing performance. The Review Cost Accounting Distributions page shows the summarized transaction instead of transactions for each serial number level.
Summarize Cost Transactions for Lot Controlled Items	Enable this option if you want to summarize distributions created for inventory transactions of items that are lot tracked, but the associated valuation structure doesn't have the Lot costing attribute. The lot level costs can be summarized at the sub inventory or organization level, thereby improving the processing performance. The Review Cost Accounting Distributions page shows the summarized transaction instead of transactions for each lot number level.

Field

Description

Summarize Cost Transactions for Serial Controlled Items

Enable this option if you want to summarize distributions created for inventory transactions of items that are serial tracked, but the associated valuation structure doesn't have the Serial costing attribute. The serial level costs can be summarized at the sub inventory or organization level, thereby improving the processing performance.

The Review Cost Accounting Distributions page shows the summarized transaction instead of transactions for each serial number level.

Summarize Cost Transactions for Lot Controlled Items

Enable this option if you want to summarize distributions created for inventory transactions of items that are lot tracked, but the associated valuation structure doesn't have the Lot costing attribute. The lot level costs can be summarized at the sub inventory or organization level, thereby improving the processing performance.

The Review Cost Accounting Distributions page shows the summarized transaction instead of transactions for each lot number level.

Click Save and Close.