Cost Accounting for Outside Processing

Oracle Cost Accounting provides costing and accounting features for manufacturing outside processing, where one or more work order operations are outsourced to a supplier who provides specialized manufacturing services.

Costing of Outside Processing Work Orders

An outside processing work order is costed and processed as follows.

• The outside processing service is modeled as an Item in cost planning, and is attached to a supplier operation.

• You can define a standard cost and overheads for the outside processing item.

• The outside processing item cost is included in the finished product's rolled up cost.

Transaction Processing for Outside Processing

Cost Accounting supports the Purchase Order Receipt into Manufacturing transaction type for the costing of outside processing items delivered to Manufacturing. The transaction processing depends on the cost method, as follows.

• Actual or Average cost method. The purchase price multiplied by the number of items received is added to the work in process valuation.

• Standard cost method. The standard cost multiplied by the number of items received is added to the work in process valuation. The difference between the purchase price and the purchase order is accounted as a purchase price variance.

Accounting Distributions Created for Outside Processing

You can review the distributions created for outside processing in the Cost Accounting work area on the Review Cost Accounting Distributions page. Cost Accounting creates the following distributions for the delivery of the outside processing service item to Manufacturing.

Accounting Line Type	Transaction Type
Work In Process Valuation	Debit
Receiving Inspection	Credit