Cost Accounting for Lot Transactions

You can create lot split, merge, or translate transactions in inventory to record events that require you to break, combine, or transform some or all of the goods in a specific lot.

After you transfer these transactions to Cost Management and run the Create Cost Accounting Distributions process, the cost distribution processor creates distributions to record the movement of the inventory value from one lot and subinventory to another lot and subinventory.

Lot split, merge, and translate result in two or more transactions being created. Before we understand how the lot transactions are costed and accounted, let's learn a little bit about these transactions.

Lot Split: A source lot is split into two or more lots. Here, a transaction is created for the source lot where the quantity and the corresponding inventory value are issued out from the lot. Also transactions are created for each of the resultant lots where the quantity and the corresponding inventory value are received into the new lots.
Lot Merge: Two or more source lots are merged into a resultant lot. Here, transactions are created for each source lot where the quantity and corresponding the inventory value are issued from the lot. Also, a transaction is created for the resultant lot where the quantity and corresponding inventory value are received.
Lot Translate: A source lot is translated into a resultant lot. Here, a transaction is created for the source lot from which the quantity and corresponding inventory value are issued and another transaction is created for the resultant lot where the quantity and corresponding inventory value are received.

Costing of Lot Split, Merge, and Translate Transactions

When lot transactions are interfaced to costing, transactions for the source lots are costed based on the cost method.

Average Cost: The average cost at the item - valuation unit level as on the cost date.
Actual Cost: The cost of the layer being depleted.
Standard Cost: The standard cost of the item at the inventory organization level.

The transactions for the resultant lots are costed as listed in this table.

Lot Transaction	Cost Derivation
Lot Split	Same as the cost for the source lot
Lot Merge	Weighted average cost of the lots being merged
Lot Translate	Same as the cost for the source lot

When you run the Create Cost Accounting Distributions process, the distributions are created and can be reviewed on the Review Cost Accounting Distributions page.

Note: Cost Accounting creates distributions for the lot split, merge and translate transactions even when the Account Intravaluation Unit Transfers option is set to no in the cost profile.

The table lists the distribution created for transactions corresponding to the source lots.

Accounting Line Type	Transaction Type
Offset	Debit
Inventory Valuation	Credit
Expense	Debit
Material Overhead Absorption	Credit

Note: Expense and Material Overhead Absorption distributions are created only when the accounting overhead rules are defined for the issue leg of the transactions or the rules are defined for the receipt leg of the transaction with Absorption Type set to Expense.

The table lists the distribution created for transactions corresponding to the resultant lots.

Accounting Line Type	Transaction Type
Inventory Valuation	Debit
Offset	Credit
Inventory Valuation	Debit
Material Overhead Absorption	Credit

Note: Inventory Valuation (for overhead) and Material Overhead Absorption distributions are created only when the accounting overhead rules are defined for the receipt leg of the transactions.

Accounting of Lot Split, Merge, and Translate Transactions

To support accounting of the lot transactions, new accounting events are introduced:

Lot Split
Lot Merge
Lot Translate

Based on your accounting requirements, review and modify the subledger journal entry rule sets to account for these transactions. You can either copy an existing journal entry rule set or use the seeded rule sets to set up account rules for the new accounting events.

Tips and Considerations

You should make a note of these consideration with reference to the costing and accounting of lot transactions:

The Summarize Lot Transactions option in the cost profile is effective and summarizes lot transactions only when the valuation unit on the cost profile for the item is higher than the lot level. Transactions for Lot - Serial items can't be summarized.
On the Manage Accounting Overhead Rules page, you can define accounting overhead rules for lot transactions. Overheads for the issue leg of the transaction can only be expensed. However, overheads defined for the receipt leg of the transaction can be included in inventory or expensed.
You can create receipt cost adjustments for the receipt leg of the lot transactions from the Manage Cost Adjustments page.