Cost Profiles, Default Cost Profiles, and Item Cost Profiles

Cost profiles define the cost accounting policies for items. The cost processor refers to the attributes of a cost profile to calculate costs and create accounting distributions for inventory and trade transactions.

Each item in a cost organization book requires a cost profile to calculate the inventory transaction costs.

Cost Profile Definition

A cost profile has the following attributes:

Cost profile set. Cost profiles use set-level definitions, and all cost organizations belonging to that set can share the same cost profile definitions.
Cost method. Establishes how cost is calculated. The costing application uses the perpetual average cost , actual cost , or standard cost method.
Valuation structure. Sets the granularity level at which items are costed, for example Cost Organization level, or Inventory Organization, Lot, and Grade level.
Valuation structure type. Asset, Expense, or Consigned type.
Cost component group. Maps incoming cost components to cost elements, which are used to cost transactions.
Costing unit of measure (UOM). Used to cost the item. Some items have primary and secondary units of measure, and there is no fixed conversion factor between the two. For example, you can calculate the cost of chickens by chicken or by weight.
Quantity depletion method. Sets how inventory quantity is depleted when inventory transactions are costed. The method used by the costing application is first in, first out (FIFO).
Method for processing negative quantity. Establishes how to treat depletion of inventory when the depletion quantity exceeds inventory on hand. Options are Always, To Zero, or Never.
Propagate cost adjustment. Option to propagate cost adjustments down the supply chain, available only if using the actual cost method.
Receipt without cost. Specifies that for sales returns without a Return Material Authorization RMA reference or missing incoming cost, the cost processor uses the first or last receipt layer cost.
Referenced RMA cost. Specifies what the cost processor uses for sales returns with an RMA reference. For the Actual cost method, the processor uses the average cost of the original sales issue. For the Average cost method, the processor uses the current perpetual average cost. For the Standard Cost method, it uses the current standard cost.
Accounting distribution basis. Defines accounting for consigned inventory transactions. Options are At Zero, or Actual Cost.

Cost Profile Assignment to Items

Assign cost profiles to items in each cost organization and book combination where there are item transactions. Cost organizations can have multiple cost books and the same item can have different cost profiles in different cost books used by the cost organization. This is useful when you want to use different books for various financial reporting and decision making purposes, such as statutory reporting, or management reporting.

Items can also use different cost profiles in various cost organization and book combinations, when they require different cost accounting policies.

Note: An item can have only one Asset, one Expense, and one Consigned cost profile in each cost organization book. You must assign at least one cost profile to the cost organization book.

You can simplify the effort by assigning default cost profiles at the cost organization book level, or at the item category level within the cost organization book. Default cost profiles are generally used if the costing policy is the same for all items in the cost organization book, or in the item category.

Override default cost profiles by assigning specific item cost profiles at the individual item level. You can modify or delete a default cost profile assignment at any time before transactions have been processed. Once transactions for an item are processed you can't change the cost profile of the item.

Note: For a periodic average cost enabled cost book, you can only assign a cost profile with the periodic average cost as the default cost profile or item cost profile.

You can assign cost profiles in three ways:

Automatic without approval. If the default cost profile has the item profile creation mode set to Auto, the preprocessor automatically generates and assigns the default cost profile to new items. This means that the cost processor uses the same cost profile for all items within that cost organization book, or within the item category.
Automatic with approval. If the default cost profile has the item profile creation mode set to Review Required, you must review and approve the generated cost profile before the cost processor assigns it to new items.
Manual. Manually assign the cost profile to a new item before the cost processor processes the first transaction. This cost profile then remains in effect for subsequent transactions. The manually assigned cost profile always takes precedence over the default cost profile.

Note: When you're manually assigning a cost profile to an item, the options available are both:

Cost profiles belonging to the set that's specific to the cost organization of the item.
Cost profiles belonging to the Common set which spans all cost organizations.