ITEMS COSTING

COSTING METHODS

Standard Costing
Value inventory at pre-determined cost (expected cost is fixed)

In Standard Costing, each item has a cost defined (standard cost) for each inventory organization.
Transactions are costed at standard costs, then actual costs are collected and we will review the variance.
An assembly that is built has a standard cost. Each job that produces assemblies may create
variances. Oracle separates the variances for material, resources (labor or machines), overhead, and
outside processing (OSP)

Actual cost methods

Oracle has three perpetual actual cost methods. They are actual in that they are not based on
standards. Each of the methods is considered as Generally Accepted Accounting Principle
(GAAP). The actual methods are Average Costing, FIFO, and LIFO

Average Costing
Value inventory at a moving average cost
Since items are transacted at actual cost, cost will be collected before issuing the item. Receipts and
issues are costed in the same sequence as the transactions are entered

Under average cost systems, the unit cost of an item is the average value of all receipts of that item to
inventory, on a per unit basis. Each receipt of material to inventory updates the unit cost of the item
received. Issues from inventory use the current average cost as the unit cost.

COST ELEMENTS

Cost elements divide your items cost into five main elements and into as many sub-elements as you
want.
The five main cost elements are defined by Oracle and you cannot change them.
Material: the sum of the purchased material
Material overhead: sum of the overheads associated with buying and handling that material
Resource: Resource cost element represents the labor and machinery cost involved in the
manufacturing process
Overhead : represents the overheads involved in the manufacturing process
Outside processing: the cost of having a 3rd party perform a step in the manufacturing process
The material and material overhead are used in purchasing an item. The resource, overhead, and outside
processing are used in the manufacturing of an item

COST TYPE

Cost types allow you to maintain different versions of an items cost (by cost element).

For transactional processing and accounting, Oracle only uses one cost type.
For the standard costing method, this is a cost type called Frozen
For the average costing method, this is a cost type called Average. You cannot directly update the
Frozen or Average cost types.

UPDATING COSTS

STANDARD COST UPDATE

The standard cost update procedure enables you to define and roll up pending costs, simulate changes to
standard costs, and then update pending costs to the Frozen standard cost type.

To update standard costs we have to define cost type for pending standard costs and pending costs for
each of the cost elements and then rollup pending costs.

Roll up pending costs: This adds up pending costs for all cost elements of an assembly and creates a
new pending cost for the assembly.

For cost roll up we will run a concurrent program called SUPPLY CHAIN COST ROLLUP in
COST MANAGEMENT responsibility

Then we will update the pending cost to standard cost (frozen cost) by using the Standard Cost Update
program. This program copies cost from another cost type to the Frozen type. The differences between
to two costs will create an adjustment to your inventory value.

AVERAGE COST UPDATE

The Average cost is updated when you receive an item on a purchase order.

When you update average costs, items in all asset subinventories in your organization and inventory in in
transit that is owned by your organization are updated (revalued) by changing the unit cost to the new
specified cost

You can change costs by cost element and can choose one, several, or all cost elements at the same time.
The offset to the change in inventory value resulting from a cost update is posted to the average cost
adjustment account(s). Items in work in process are not revalued by an average cost update, nor are
expense items or any item in an expense subinventory.

CASE: 1
NAVIGATION:
Cost managementitem costsitems costs---select organization (M1)
Query through the name of item (item:1234) , below form appears
Now copy the Frozen cost to another cost type and click on Costs, below form will be opened.
In the above form select the cost elements and give related sub elements and manually give the
amount/rates and click on save.
Now we have to do cost rollup for that we have to run a concurrent program

ViewRequestsubmit a new requestsingle request

Query the form through the name of the concurrent program Supply chain Cost rollup
Now enter the description, select the cost type
Under Range option, select specific item from LOV and select the name of item under Specific item
option and click on OK and submit the Request
To view the status of the request submitted, go to Viewall my requests find

When you click on find below screen appears

Now click on Refresh data option available at top left of the page, and check if the request is completed or
Failed.
Now to update pending costs to frozen costs we have to run standard costs update concurrent program for
that navigate to Inventory Responsibility

Navigation
Inventorycostsstandard costs updateupdate costs
Select cost type(Pending), Adjustment account (Miscellaneous) enter description and enter Item Range as
(Specific Item) and select Specific item (1234), Save option as YES
Now click on Submit.
Now check the status of request submitted
To view the status of the request submitted, go to Viewall my requests find
The request has been completed,that means pending cost is updated to frozen cost.

Inventorycostsitem costsquery through item name (1234)

Below form appears where you can see that the costs are updated.
Pre-requisites for standard cost update:

Accounting Period must be open

Make sure Inventory accounting periods are open, General Ledger accounts are set.

Define Organization Parameters window

o Costing Method is set to Standard

o Transfer Detail to GL is appropriately set

o Default Material Sub-Element account (Required)