11-10 costing for mfg v1

8/3/2019 11-10 Costing for MFG v1

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Overview of Discrete Costing forManufacturing

OAUG MFG Discrete SIG MeetingNovember 10, 2010

Douglas Volz

Douglas Volz [email protected]



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



Inventory Structure

Global Organization (Item Master)

Inventory Organization

Subinventory

Locators

FGSubinventory

STORESSubinventory

MRBSubinventory

WIPSubinventory

Locators Locators

GlobalOrganization

(Item Master)

InventoryOrganization

HDQTRSLocation

Slide 4



Complex Financial Entities

CorporateConsolidatedLedger

SecondaryLedger

PrimaryLedger

Legal Entity

OperatingUnit

InventoryOrgs

Corporate Consolidated Ledger(USD)

USA PL

(USD)

OtherLEs

US OU

CORPLE

Item

Master(ZZZ)

SwitzerlandOrg

Korea OU

Switzerland(CHE) LSP’s

LSP’s

EuropeanSLs

ORGKorea

SwitzerlandOU

US Dist.

Centers

US LSP

Orgs

Swiss Dist.Center

Asia-PacOUs

Asia-PacDist. Centers

Europe Dist.Centers

EuropeLSP Orgs

Other

EuropeanOUs

Korea LE Asia-PacLEs

Swiss LE OtherEuropean

LEs

Korea(KRW)

Asia-PacLEs

Swiss PL

(USD)

European PL

(USD)

Slide 5



Costing Concepts

Costing Methods

Average Costing

Standard Costing

Periodic Costing

FIFO Costing

LIFO Costing

Slide 6



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

Slide 7



Standard Costing

The primary objective of standard costing is to provide aperformance measurement system

Unit costs are set up in advance as an expected cost

Component costs (material costs) are defined using the projectedaverage 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 yourcosts change

All manufacturing and distribution activities are measured againstthe expected costs

Typical variances include:

Purchase Price Variance,

Invoice Price Variance

Manufacturing Variances (material usage, resource efficiency, etc.)

Slide 8



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 nonecessary 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

Slide 9



Organizational Costing

Costing is by Plant or Warehouse (called an inventory organization)

Each inventory organization has its own item material, labor, outsideprocessing, 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 SubledgerTransactions

• Standard costing uses the Frozen cost type, and average costing uses the Average costtype …

Within an inventory organization, all items have the same costing method, Average, or Standard or FIFO or LIFO or Periodic

Slide 11



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.)

Slide 12



Oracle Cost Management Interaction

GENERAL

LEDGER

ACCOUNTSPAYABLE

PURCHASING

FIXED

ASSETS

ACCOUNTS

RECEIVABLE

INVENTORY

ORDERENTRY

WORK INPROCESSShipment

Transactions

InvoiceInfo

BILL OFMATERIAL

MRP

SERVICE

RepairRMA's

S/O Requirements

WIP Supply

to MRPMRP Release

to WIP

ENGINEERING

COST

MANAGEMENT

BOM's/Routings for Roll Up

Costs

Values

Trans

ENG Items

planned inMRP

WIP Consumption &WIP Completions

AssetAdditions

Invoices/ Payments

Asset CostAccum Depr

Depr Exp

PUR provides PO's

and Receipts

DeliveryTrans

Invoices/ Cash Receipt

Trans

INV ReceiptTrans &

Exp Accr

Items

BOM's

Items from BOM's

Matl Requirements

Inventory/

WIP Trans

Values TransValues INV

Stds Adj

Misc Trans

for WarrantyRepair Parts

CASH

MANAGEMENT(Bank Recon)

Slide 13



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

Slide 14



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

Slide 15



Manufacturing Variance Summary

Costs-Incurred Costs-Relieved Variances

Previous-level costs@ actual usage

Previous-level costs@ standard

Material usage variance

Resource efficiencyResource Resource

Overhead efficiency

Outside processing Outside processingOutside processing

efficiency

Overhead Overhead

Sources of:• Components issued• Resources earned• OSP earned• Overheads earned

• WIP completions@ standard rolled

up costs

=-

=

=

=

-

-

-

Slide 16



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

Slide 17



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

Slide 18



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

Slide 19



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)

Slide 20



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)

Slide 21



Slide 22

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



Slide 23

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 standardoracle 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

Slide 24



SLA for Product Line Accounting, Variance Recognition

Transactions

Accounting Events

Cost Management SLA

AccountingConfigurations

Subledger

Balances

SubledgerJournal Entries

AccountingProgram

Journal Entry Setup

GLJournal Entriesand Balances

Slide 25



SLA Accounting Tables

Enter Transaction(s)

TransactionAccounting Tables

AccountingProcessor

XLA_AE_HEADERS

XLA_AE_LINES

XLA_DISTRIBUTION _LINKS

XLA_EVENTS

ModuleSpecific

TransactionAccounting

Tables

CreateAccounting

G/L Tables

GL_LEDGERS

GL_JE_HEADERS

GL_JE_LINES

GL_JE_BATCHES

One CommonAccountingSubledger

Table

GL_ INTERFACE

ReceivingMaterial

WIP

Basic Table Structure for SLA

Slide 26



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 orderline to the revenue that is billed for that sales order line.

“True”

COGS

1. Customer Shipment 10

102. COGS Recognition

DeferredCOGSInventory

10

10

Slide 27



Slide 28

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 joblevel. The transaction logic now considers pre-yield BOM quantity perassembly 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 organizationhierarchy

Define your organization hierarchy using an Human Resources,Purchasing or Inventory responsibility

Using the Inventory Organization Parameters, Costing tab, makesure your “Transfer to GL” settings are all the same for all orgs inthe same organization hierarchy

Slide 31




Open Period Control request

Slide 32




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 storedsummary values by inventory organization and subinventory (blank subinventories are for intransit)

When you close inventory you automatically store period-endinventory values and costs by organization, subinventory anditem

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 updatecapabilities

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

Slide 39



Slide 40

Acknowledgements

Oracle Cost Development

Partners in crime at our clients



Thank You for Your Attendance andParticipation

Douglas A. Volz

Slide 41



Slide 42

Douglas Volz ([email protected])

Professional Background

Doug Volz is a Senior Architect and Advisor for Oracle Application projects, with a particular interest inCost and Project Management. He has 30 years accumulated experience, including 5 years in OracleDevelopment (co-designing Oracle Cost Management) and 12 years in industry in Cost and AccountingManagement positions. His Manufacturing and Cost systems experience covers project management,software design/development, delivery and consulting services, for both Oracle Corporation, andmultiple international consulting firms. Prior to his systems career, Mr. Volz also held numerousmanagement 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-currencywith 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 OracleCustomer Advisory Board for Fusion Costing.

Core Expertise

Multi-organization, Multi-currency ERPImplementations

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

11-10 costing for mfg v1

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