Exclude Invoice Cost Variances from Cost Management

Oracle Fusion Cloud Cost Management provides an ability to value your inventory at the true acquisition costs. During receipt into inventory, inventory is valued at either purchase order price, including tax and any landed cost charges, or standard.

Any differences between the standard cost and the purchase order price are expensed as a purchase price variance. Subsequently, any additional costs that are imported from Payables, such as invoice price variance, exchange rate variance and tax rate variance, are used to true up the inventory cost by applying them as acquisition cost adjustments. The true up of inventory cost is carried out based on the cost method.

• Actual cost (FIFO): acquisition cost adjustments apply to on-hand inventory as well as any consumption transactions such as sales order issues, work order issues, and transfers.

• Average cost: acquisition cost adjustments apply only to the extent of on-hand inventory and any adjustments pertaining to inventory that's consumed are expensed out into cost variance.

• Standard Cost: acquisition cost adjustments are always expensed out as a purchase price variance up to the extent of quantity delivered.

The amount being applied as an acquisition cost adjustment depends on proration to receipt quantity. As a result, the receiving inspection account will contain the balance arising from the differences between receipt quantity and Invoice quantity. In the case of standard costing, the remaining amount in the receiving inspection account reflects in the balance sheet instead of an income statement account. This poses an accounting challenge because the accounting of these variances as an expense is already complete in Payables that subsequently gets reversed into the balance sheet.

You can now exclude payables invoice cost variances from inventory valuation for inventory and work order destination purchase orders. You can use this for all cost methods when you don't intend to apply invoice cost variances as acquisition cost adjustments to item cost and inventory value.

Enable the exclude invoice cost variances feature by using the receipt accounting profile options. The profile option code for this feature is ORA_CMR_IGNORE_AP_INV_VAR_ALL. The corresponding profile name is "Ignore Invoice Variances for Inventory Destination Purchase Orders". This profile option must be set at the Site level.

When you set the profile value to Yes, unprocessed invoices in costing for both uninvoiced and partially invoiced PO distributions aren't used for creating additional receipt accounting distributions. The invoice variance amounts, if any, aren't considered for true up of inventory valuation or Purchase price variance.

When you change the profile value to No, unprocessed invoices in costing for both uninvoiced and partially invoiced PO distributions are used for creating additional receipt accounting and cost accounting distributions for acquisition cost adjustment based on existing logic.

Note:

• When you collect costs in Oracle Fusion Cloud Project Portfolio Management from Oracle Cost Management, the invoice cost adjustments aren't imported to a project for inventory and work order destination flows when the profile option is configured as 'Yes'. Invoice cost adjustments for expense destination purchases will continue to be processed and accounted in receipt accounting.

• Although you can enable or disable this feature at any point in time, keep in mind that frequently enabling or disabling of this profile option could potentially lead to discrepancy in cost and accounting balances. Therefore, frequent changes to this profile option isn't recommended.

Implementation Decision Points for Exclude Invoice Cost Variances

Before you set the costing profile option, consider these decisions and their corresponding impact.

Decision	Impact
If items are standard costed, enable this feature.	Invoice cost variances will be expensed out as a part of invoice accounting and won't be additionally processed in receipt and cost accounting for acquisition cost adjustments to purchase price variance. As a result, receiving inspection account won't contain unresolved balances related to invoice cost variances.
If items are actual or average costed and there can be significant variances between PO price and invoice price, don't enable this feature.	Existing logic will continue to apply.
If items are actual or average costed and there is a requirement to send additional invoice costs to Projects, don't enable this feature.	Existing logic will continue to apply and any additional invoice cost variances will be sent to projects.
If certain items are standard costed while others use actual or average cost method and there is a need to true up inventory value for those items based on invoice cost variances, don't enable this feature.	This feature is applied at the site level and is applicable across all cost and inventory organizations. If you enabling this feature, invoice cost variance based adjustments to inventory value will be disabled also for actual and average cost items.