Receipt Cost Adjustment and Propagation

You might adjust cost of a processed receipt for reasons such as invoice price variances, retroactive purchase order price changes, or prior adjustments. If you're using the actual cost method, you can propagate such adjustments to downstream inventory consumption transactions.

In the case of an interorganization transfer, you can propagate the receipt cost adjustment to the destination inventory organization.

Receipt Cost Adjustments

Enter receipt cost adjustments on the Create Cost Adjustments page. Because these adjustments could distort the view of costs and margins downstream in the supply chain, you have the option of tracking them separately by using cost elements of type Adjustment.

If you're not tracking cost adjustments separately, you can use cost elements of type Material, Overhead, or Profit in Inventory.

Propagation of Receipt Cost Adjustments

You can propagate cost adjustments through the supply chain only if you're using the actual cost method for transaction costing. To do this you must enable propagation in the cost profile setup on the Create Cost Profile page.

When propagation is enabled, the cost processor:

• Propagates receipt cost adjustments to downstream transactions by revaluing the transactions to the extent of quantity consumed.

• Revalues any remaining inventory.

The cost processor adjusts receipt costs for interorganization transfers by recording the propagated cost as profit in inventory in the destination organization and all organizations in between, only if propagation is enabled in all of them and the profit in inventory tracking is enabled on the transfer agreement. However, if the profit in inventory tracking is disabled on the transfer agreement or if the transfers are cost-based transfers, the difference is booked as inter organization gain or loss in the shipping node. On the other hand, propagation stops if an inventory organization is associated with a cost profile that doesn't use the actual cost method or doesn't have propagation enabled.

The processor always propagates cost adjustments through logical inventory organization nodes in the flow, regardless of propagation enablement.

If propagation isn't enabled, then the receipt cost adjustment is written off as an expense for all inventory that's consumed.

Propagate Cost Changes for Cost-Based Transfers in Actual Cost

After you enable this feature, for cost-based inventory transfers, acquisition cost adjustments, such as manual cost adjustments or charges like freight, insurance, or customs, are propagated to the destination organization. This is applicable only if the source organization uses the actual cost method and cost propagation is enabled. Any cost adjustment made in the source organization is automatically reflected in the destination organization ensuring the item cost in the destination organization reflects the true cost of goods. The source organization no longer carries the gain or loss, and the downstream processes, such as projects, COGS, and budgetary control, are accurate.

This is applies to direct and in-transit inventory transfers within the same profit center business unit (PCBU). Also, it works for inventory as well as expense destinations. The cost adjustments are automatically propagated to projects and budgetary control for expense destinations.

Transaction	Source Organization	Destination Organization
Without Cost Propagation	Adjustment booked to interorganization gain or loss (Dr) Absorbs the cost change	No impact Ignores the cost change
With Cost Propagation	Adjustment booked to interorganization receivables (Dr) Recognizes the receivable No longer carries gain or loss	Adjustment added to inventory valuation (Dr) and interorganization payables (Cr) Inventory updated with the actual cost

Note:

• If you disable the feature, only transactions created while it was active will continue to follow the propagation logic.

• Manual cost adjustments made in the destination organization are honored locally and on returns, these adjustments are reflected as cost variances.

• Cost propagation isn't applicable for transfers across PCBU that use Oracle Supply Chain Financial Orchestration.

• Cost propagation applies for primary to primary and primary to secondary cost books, but not for secondary to primary cost books.