Overview_of_Oracle_Discrete_Costing_for_MFG_v2 (1).ppt

Overview of Discrete Costing for
Manufacturing
OAUG MFG Discrete SIG Meeting
November 10, 2010
Douglas Volz
Douglas Volz Consulting
doug@volzconsulting.com

Helping people using Oracle Applications since 1990
Agenda
 Inventory Structure
 High Level Review of Oracle Cost System Capabilities
 Costing Methods
 Oracle Cost Management Structure
 Discrete MFG and Costing
 Setting Standard Costs
 Setting Average, FIFO, LIFO Costs
 Month-End Accounting Close
Slide 2

Agenda (Continued)
 Release 12 Cost Improvements
 Flexible Account Number Assignment
 Little Known Cost Features
Slide 3

Helping people using Oracle Applications since 1990 Slide 4
Inventory Structure
 Global Organization (Item Master)
 Inventory Organization
 Subinventory
 Locators
FG
Subinventory
STORES
Subinventory
MRB
Subinventory
WIP
Subinventory
Locators Locators
Global
Organization
(Item Master)
Inventory
Organization
HDQTRS
Location

Complex Financial Entities
Corporate
Consolidated
Ledger
Secondary
Ledger
Primary
Ledger
Legal Entity
Operating
Unit
Inventory
Orgs
Corporate Consolidated Ledger
(USD)
USA PL
(USD)
Other
LEs
US OU
CORP
LE
Item
Master
(ZZZ)
Switzerland
Org
Korea OU
Switzerland
(CHE) LSP’s
LSP’s
European
SLs
ORG
Korea
Switzerland
OU
US Dist.
Centers
US LSP
Orgs
Swiss Dist.
Center
Asia-Pac
OUs
Asia-Pac
Dist. Centers
Europe Dist.
Centers
Europe
LSP Orgs
Other
European
OUs
Korea LE Asia-Pac
LEs
Swiss LE
Other
European
LEs
Korea
(KRW)
Asia-Pac
LEs
Swiss PL
(USD)
European PL
(USD)

Costing Concepts
 Costing Methods
 Average Costing
 Standard Costing
 Periodic Costing
 FIFO Costing
 LIFO Costing

Average Costing
 Oracle supports a moving or weighted average cost
 The unit cost changes with each receipt transaction
 Unit costs reflect the average of the incoming receipts from
 purchase order receipts,
 purchase order returns
 inter-organization receipts
 and for manufacturing, for WIP assembly completions
 miscellaneous issues may or may not affect the unit cost
 All issues occur at the existing average costs
 Assembly costs come from the cost of your assemblies built in WIP
 You may have indirect costs (material overheads, etc.) as well

Standard Costing
 The primary objective of standard costing is to provide a
performance measurement system
 Unit costs are set up in advance as an expected cost
 Component costs (material costs) are defined using the projected
average acquisition costs, plus any associated indirect costs
 Assembly costs are rolled up using bills of material and routings
 Standards are reset periodically, depending on how quickly your
costs change
 All manufacturing and distribution activities are measured against
the expected costs
 Typical variances include:
 Purchase Price Variance,
 Invoice Price Variance
 Manufacturing Variances (material usage, resource efficiency, etc.)

Other Costing Methods
 FIFO Costing
 FIFO costing values inventory by assuming that the oldest inventory (first
in) is the first to be used or sold (first out), but there is no necessary
relationship to the physical movement of specific items
 FIFO supports WIP costing
 LIFO Costing
 LIFO costing values inventory by assuming that the most recently received
item (last in) is the first to be used or sold (first out), but there is no
necessary relationship to the physical movement of specific items
 LIFO supports WIP costing
 Periodic Costing
 Periodic has dual costing capabilities, using Periodic Costing at month-end
and using transaction-based “real-time” costing prior to month-end
 Periodic supports WIP costing

Cost Structure
Inventory Cost
Organization
Global
Organization
(Item Master)
Matl
Cost Element
Matl O/H
Cost Element
Resource
Cost Element
Overhead
Cost Element
Outside
Processing Cost
Element
Matl
1
Matl
2
Matl O/H
1
Matl O/H
2
Res
1
Res
2
O/H
1
O/H
2
OSP
1
OSP
2
Sub-elements

Organizational Costing
 Costing is by Plant or Warehouse (called an inventory organization)
 Each inventory organization has its own item material, labor, outside
processing, and overhead costs
• Each inventory organization may have multiple cost versions, called Cost Types
• You can have any number of cost types that are not active (unimplemented costs)
 Each inventory organization can have its own costing method
 There is only one “Active” cost type that is used to record your Subledger
Transactions
• Standard costing uses the Frozen cost type, and average costing uses the Average cost
type …
 Within an inventory organization, all items have the same costing method,
Average, or Standard or FIFO or LIFO or Periodic

Cost Elements
 You have five available cost elements for each cost type
• Material (supplier purchase costs)
• Material Overhead (freight in, material handling, etc.)
• Resource (labor, machines, other factors of production)
• Outside Processing (subcontracting or outsourcing)
• Overhead (Resource and Outside Processing Overhead)
 Only use the cost elements you need
 But you can have an unlimited number of sub-elements
• Material (metal, plastic, etc.)
• Material overhead (inter-co profit, in-bound freight, etc.)
• Resources (labor, machine groups, etc.)
• Outside Processing (subcontract vendor service1, service2, etc.)
• Production Overheads (Factory Burdens, etc.)

Oracle Cost Management Interaction
GENERAL
LEDGER
ACCOUNTS
PAYABLE
PURCHASING
FIXED
ASSETS
ACCOUNTS
RECEIVABLE
INVENTORY
ORDER
ENTRY
WORK IN
PROCESS
Shipment
Transactions
Invoice
Info
BILL OF
MATERIAL
MRP
SERVICE
Repair
RMA's
S/O Requirements
WIP Supply
to MRP
MRP Release
to WIP
ENGINEERING
COST
MANAGEMENT
BOM's/Routings for Roll Up
Costs
Values
Trans
ENG Items
planned in
MRP
WIP Consumption &
WIP Completions
Asset
Additions
Invoices/
Payments
Asset Cost
Accum Depr
Depr Exp
PUR provides PO's
and Receipts
Delivery
Trans
Invoices/
Cash Receipt
Trans
INV Receipt
Trans &
Exp Accr
Items
BOM's
Items from BOM's
Matl Requirements
Inventory/
WIP Trans
Values Trans
Values INV
Stds Adj
Misc Trans
for Warranty
Repair Parts
CASH
MANAGEMENT
(Bank Recon)

Inventory Costing
 Costs Into Inventory/Stores
 Purchase costs into Inventory: Material, Material Overhead, etc. costs
 For Standard Costing: Purchase Price Variances
 More Costing for Inventory Movement
 Misc. Account Receipt / Issue
 Physical Inventory, Cycle Counts
 Consignment (WIP/OSP, purchase consignment)
 Subinventory and location transfers
 Customer shipments
 Internal orders
 Project shipments and transfers (PJM)
 Logical Transactions (extended supply chain network)
 Supports many intercompany scenarios
 Internal orders
 Internal shipping and billing

Discrete MFG and Costing
 All of the Costing Methods support WIP Costing
 Timing varies by how your charge to WIP
• Backflush, Assembly Pull, etc.
• Push
 Costs into WIP:
 Material Issues
 Material Overhead
 Earning Resources, Outside Processing and Overheads
 Costs out of WIP
 Scrap
 Assembly Completion
 Job Close Variances
 Only for Standard Costing

Manufacturing Variance Summary
Costs-Incurred Costs-Relieved Variances
Previous-level costs
@ actual usage
Previous-level costs
@ standard
Material usage variance
Resource efficiency
Resource Resource
Overhead efficiency
Outside processing Outside processing
Outside processing
efficiency
Overhead Overhead
Sources of:
• Components issued
• Resources earned
• OSP earned
• Overheads earned
• WIP completions
@ standard rolled
up costs
=
-
=
=
=
-
-
-

Cost Reports and Inquiries
 Material Distribution Detail/Summary Reports
 WIP Account Detail/Summary Reports
 Discrete Job Value
 Expense Job Value Report
 WIP Value Report
 WIP Value Inquiries

Setting Standard Costs
 Cost Mass Edits
 Item Cost Copies
 Cost Rollups (also across the Supply Chain)
 Standard Cost Updates
 Bills of Material Cost Inquiries and Reports
 Pending and Standard Cost Adjustment Reports

Setting Average, FIFO, LIFO Costs
 Simulation Costing with Cost Rollups and Mass Edits
 Transaction-based updates of Average, FIFO, LIFO costs
 Manual cost updates
 PO retroactive price adjustments
 And if you are clever, using open interfaces for custom
updates

Month-End Accounting Close
 Close by Inventory Organization
 Month-End Inventory, Receiving, WIP Value Reports
 Release 12, close in Inventory
 Transfer to G/L using Subledger Accounting (Create Accounting)
 Closing Inventory closes Receiving and WIP
 Purchasing has its own close (and also closes off Receiving)

Month-End Inventory Value Reports
 Inventory Value Report
 Intransit Value Report
 Subinventory Account Value Report
(disabled in Release 12)
 All Inventories Value Report
 Receiving Value Report
 Receiving Value by Destination Report
(disabled in Release 12)
 WIP Value Report
 Period Close Value Summary Report
 Period Close Reconciliation Report (11.5.10 and 12)

R12 Improvements Period Close Diagnostics
 Forms Drilldown
• Using the same Inventory Accounting Periods form you can drilldown
to associated forms to view the problem transactions
 New workflow to notify of failing transactions
 Period Close Pending Transactions Report
• Report for transactions holding up the inventory accounting period

Reconciliation Improvements in R12
 Inventory Value Reports have an “as of date”
• Inventory Value Report
• Receiving Value Report
• Intransit Value Report
• All Inventories Value Report

Flexible Account Number Assignment
 Release 12 Subledger Accounts allows you to extend the standard
oracle setups (all costing methods except periodic)
 Subledger Accounting rules govern how the final accounting
entries are created and sent to the G/L
Subledger Accounting Offers Major Improvements
Subledger Accounting Comes with Default Rules

SLA for Product Line Accounting, Variance Recognition
Transactions
Accounting Events
Cost Management SLA
Accounting
Configurations
Subledger
Balances
Subledger
Journal Entries
Accounting
Program
Journal Entry Setup
GL
Journal Entries
and Balances

SLA Accounting Tables
Enter Transaction(s)
Transaction
Accounting Tables
Accounting
Processor
XLA_AE_HEADERS
XLA_AE_LINES
XLA_DISTRIBUTION
_LINKS
XLA_EVENTS
Module
Specific
Transaction
Accounting
Tables
Create
Accounting
G/L Tables
GL_LEDGERS
GL_JE_HEADERS
GL_JE_LINES
GL_JE_BATCHES
One Common
Accounting
Subledger
Table
GL_
INTERFACE
Receiving
Material
WIP
Basic Table Structure for SLA

More Release 12: COGS Recognition
 In R12 the customer shipment entries go to deferred COGS
 Automates the matching of Cost of Goods Sold (COGS) for a sales order
line to the revenue that is billed for that sales order line.
“True”
COGS
1. Customer Shipment 10
10
2. COGS Recognition
Deferred
COGS
Inventory
10
10

Related R12 BOM Features
 Fixed Component Usage Support:
Support for lot-based materials that have a fixed usage regardless of the
job size for discrete WIP jobs, OSFM lot-based jobs and Flow
Manufacturing
 Component Yield Support:
Flexibility to control the value of component yield factors at WIP job
level. The transaction logic now considers pre-yield BOM quantity per
assembly rather than the quantity inflated by shrinkage.

Standard Features You May Not Be Using
 Currency setup
 Period open and close by organization hierarchy
 Material overhead absorption rules
 Transaction Value Historical Summary Report
 Period close snapshots
Slide 29

Standard Features: Currency Setup
 You can change your item cost decimal precision at any time
Slide 30

Standard Features:
Period Open/Close by Org Hierarchy
 You can open and close multiple inventory periods by organization
hierarchy
 Define your organization hierarchy using an Human Resources,
Purchasing or Inventory responsibility
 Using the Inventory Organization Parameters, Costing tab, make
sure your “Transfer to GL” settings are all the same for all orgs in
the same organization hierarchy
Slide 31

Standard Features:
 Open Period Control request
Slide 32

Standard Features:
 Close Period Control request
Slide 33

Standard Features:
Mat’l Overhead Absorption Rules
 Explicitly say which ones do and do not earn material overhead
Slide 34

Standard Features:
Transaction Value Historical Summary Report
 Rollback inventory value to any date you choose
 Choose which columns of information to view
 You have four columns to select
 The fifth column on the report is everything else
 Useful as a “roll-forward” audit report
 Useful to verify month-end inventory value report balances
 Two reports:
 Transaction Value Historical Summary (for Standard Costing)
 Transaction Value Historical Summary – Average Costing
Slide 35

Standard Features:
Transaction Value Historical Summary
Slide 36

Standard Features: Period Close Snapshot
 Period close snapshots (Release 11.5.10 onward)
 Prior to Release 11.5.10, the inventory period close only stored
summary values by inventory organization and subinventory
(blank subinventories are for intransit)
 When you close inventory you automatically store period-end
inventory values and costs by organization, subinventory and
item
Slide 37

Desired Enhancements
 Multi-Org Reporting
 Multi-Org Material Account Summary Report
 Multi-Org Receiving Account Summary Report
 Multi-Org WIP Account Summary Report
 Multi-Org All Inventories Value Report (with account numbers)
 Multi-Org Inventory Value Report (with account numbers)
 Multi-Org Receiving Value Report (with account numbers)
 Multi-Org Expense Value Report (with account numbers)
 Multi-Org WIP Value Report (R12 still has account numbers!)
Slide 38

Summary
 Oracle Discrete Costing offers robust, flexible costing
 Multiple costing methods are supported
 Powerful mass edits, item cost copies and cost update
capabilities
 Account classification is much better with Subledger Accounting
 As you transact your cost accounting happens automatically
 Multi-org reporting is a continuing area of concern

Acknowledgements
 Oracle Cost Development
 Partners in crime at our clients

Thank You for Your Attendance and
Participation
Douglas A. Volz
Slide 41

Douglas Volz (doug@volzconsulting.com)
Professional Background
Doug Volz is a Senior Architect and Advisor for Oracle Application projects, with a particular interest in
Cost and Project Management. He has 30 years accumulated experience, including 5 years in Oracle
Development (co-designing Oracle Cost Management) and 12 years in industry in Cost and Accounting
Management positions. His Manufacturing and Cost systems experience covers project management,
software design/development, delivery and consulting services, for both Oracle Corporation, and
multiple international consulting firms. Prior to his systems career, Mr. Volz also held numerous
management accounting positions for telecommunications, defense, and electronics companies.
In his consulting roles, Doug has served over 100 clients. Many of these were multi-org, multi-currency
with global footprints. Countries include US, Mexico, UK, Netherlands, Belgium, Taiwan, P.R.O.C.,
Norway, Japan, Italy and Germany.
Doug leads the OAUG Cost Special Interest Group. He also advises and participates on the Oracle
Customer Advisory Board for Fusion Costing.
Core Expertise
 Multi-organization, Multi-currency ERP
Implementations
 Project Management and Senior Project Advisor
 Core manufacturing processes
 Cost Management
 Inventory
 Bills of Material
 WIP
 Systems Integration and Data Conversions
Experience
 Sample of clients served:
 Beckman Coulter (US)
 Matsushita (UK, Mexico)
 NTL (now Virgin Media)
 Logitech (US, Taiwan, P.R.C.)
 Celgene Corporation (US)
 NTL (UK, now Virgin Media)
 TCI International (US)
 Onninen AS (Norway)

End of Presentation

Overview_of_Oracle_Discrete_Costing_for_MFG_v2 (1).ppt

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