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11i Cost Cutoff Date toRetroactively Cost Transactions
NorCal OAUG 2007 Training Day EventJanuary 17, 2007
Eric Guether
Opnext, Inc.
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Presentation Agenda
Introduction
Business Case & Solution: Cost Cutoff Date
Transaction Examples
Inventory Miscellaneous Receipt Purchasing Receipt into Inventory
WIP Workorderless Completion
Lessons Learned
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Learning Objectives
Learn how to defer costing of transactions throughuse of the Cost Cutoff Date (CCD)
Realize the importance of CCD when updatingstandard costs
Understand lessons learned:
Potential temporary adverse effects on Inventorybalance reports
Impact on intercompany A/R invoicing
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Todays Speaker: Eric Guether
IT Director at Opnext in Eatontown, NJ
Manages Opnexts Oracle EBS 11i system
Provides user support for some 11i modules, OracleAlerts and Discoverer 9i Desktop
Member of OAUG and NJOAUG
Began career as an accountant and then CPA
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Who Is Opnext?
Lasers! Designer & maker of active fiber optic components
Spin-off of 2 Hitachi businesses
Headquarters in Eatontown, NJ
Manufacturing in Yokohama & Komoro, Japan Global sales to customers such as Lucent, Alcatel,
Cisco, Siemens, Kodak, NEC, and Hitachi
Running multiorg, single global instance of EBS 11i
11.5.10.2 (CU2) American English with Japanesenational language support (NLS)
Financials, OM, Inventory, Purchasing, Cost Mgmt.,Discrete MFG & Master Scheduling/MRP
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Examples of Opnext Products
Laser Diode Modules Transmitters Receivers
Transceivers10GbE XENPAK
Modules
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Business Case
Company practice is to update standard costs every 6months as of:
October 1st [Cost Period: Oct. 1, 2006 to March 31, 2007]
April 1st [Cost Period: April 1, 2007 to Sept. 30, 2007]
New costs not finalized until after April 1st/ October 1st
Oracles Assumption: Most companies have new
costs finalized before the start of the new cost
period and just want to defer transaction costing on
first 1 or 2 days of new cost period
At Opnext, standard cost updates typically occuraround April 10th/ October 10th
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Dilemma Before Release 11.5.7
Standard costs in Oracle do not have effective dates
How to value those early April / Oct. transactions atthe new costs after the standard cost update?
Still must value March- / Sept.- dated transactions at
the old period costs even if created in early April /Oct.
Cannot simply shut-off the Cost Manager
Might stop the costing of March / Sept
transactions created in early April / Oct, such asPending trx resolved on 1st day of new month
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Off-line Workaround in 11.5.3
Record early April / October inventory, WIP, shipping,and PO receiving transactions off-line (outside of EBS11i) until the completion of standard cost updates
Retroactively record (enter) early April / October
transactions in EBS 11i after standard cost updates Issues
Extra, unnecessary work to record offline
Unreliable / unusable inventory quantities in EBS11i for a week or more
Shipping and export documents prepared manually(not via EBS 11i) for a week or more
Violated automated business process controls
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Solution: Cost Cutoff Date
Inventory organization parameter
Introduced in release 11.5.7
Entirely met Opnexts needs
Completely eliminated the need to recordtransactions outside of EBS 11i
Controlled by the simple entry of one Cost CutoffDate for the org
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Parameter Setup
Organization Parameters > Costing Information tab
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Functionality
Intended to keep new period transactions uncosteduntil you finish your standard cost updates for the org
If the Cost Cutoff Date = 01-APR-2007, thentransactions with G/L Date of:
01-APR-2007 or later will not be costed
31-MAR-2007 or earlier will be costed, even ifcreated on or after April 1st
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Cost Update Sequence
Complete all March trx by early April
Valued at current frozen costs = old costs
Begin entry of April-dated trx on 01-APR
Close the March period in early April
Perform std. cost updates (early/mid April) Uncosted transactions are not revalued
Change the CCD to a later date
Example: 01-OCT-2007
Cost Manager then costs all existing April- datedtransactions at updated frozen costs
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When the CCD is deferring the cost of a transaction,the transaction has:
A record on the MTL_MATERIAL_TRANSACTIONStable
Allows the transaction quantities to berecognized by the EBS 11i modules
Its COSTED_FLAG = N
Indicates the record has not yet been costed
As long as the flag = N, no accounting entries[distributions] have been created yet
Database Perspective
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Example # 1: INV Misc. Receipt
Scenario where CCD will defer costing
Receive 5 units of item LASER123
Standard Cost
$1,200 per unit through end of March
$1,000 starting April 1st (updated on 04-APR)
Transaction date, 01-APR-2007, is equal the cutoffdate of 01-APR-2007
Creation date = 01-APR-2007
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Example # 1 Transaction
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Example # 1 Cost Update
To change the unit cost on 04-APR from $1,200 to $1,000
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Change CCD on April 6th to 01-OCT-2007
Example # 1 Change Cutoff Date
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Example # 1 Distributions
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Example # 1 Chart
Costing deferred until 06-APR
Valued at new cost of $1,000
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INV Trx Affected by CCD
partial list; not complete
Miscellaneous / Account Alias Transactions
Subinventory Transfer
Interorg Transfer Receiving
Pick Confirm
Ship Confirm / Sales Order Issue
Create Intercompany AR Invoices
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Other Trx Affected by CCD
partial list; not complete
Purchasing module
PO Receiving (including PPV)
Returns to Supplier WIP module
Discrete WIP assembly completion
Discrete WIP component issue
Work order-less completion
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Example # 2: PO Receiving
Receive & deliver to Inventory (no inspection)
Receive 200 units of item DIODE-5002
PO Unit Price = $0.90
Standard Cost
$1.25 per unit through end of March
$1.00 starting April 1st (updated on 04-APR)
Transaction date, 02-APR-2007, is after the cutoff dateof 01-APR-2007
Using the CCD, the receipt is costed at $1.00 per unit,triggering a purchase price variance (PPV) of $-0.10per unit [PO price $0.90 - $1.00 cost]
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Example # 2 Transaction
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Example # 2 Chart
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Example # 3: Work Order-less Completion
Work Order-less Completion (WOC)
Transaction Type = WIPAssembly Completion
Three Transactions in One
Receive 10 units of final product TRM999 intoinventory
Consume 10 units of component LASER123 frominventory
Create accrual distribution for Outside Processing
(OSP) resource charge
Transaction date 03-APR-2007 > CCD
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WOC: Three Transactions in One
Final Product
Added to Inventory
Component
Consumed fromInventory
Liability Accrued
for Outside
Processing
Charge
WORK ORDER-LESS
COMPLETION
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Example # 3 Costs
Component Standard Cost
$1,200 per unit through end of March
$1,000 starting April 1st (updated on 04-APR)
Outside Processing Charge
$50 per unit through end of March
$30 starting April 1st (updated on 04-APR)
Final Product Standard Cost
Derived from Assembly Cost Rollup $1,250 through end of March [$1,200 + $50]
$1,030 starting April 1st [$1,000 + $30]
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Example # 3 Transaction
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Example # 3 Cost Rollup
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Example # 3 Results
Transaction costing is deferred in:
INV module for final product completion
INV module for component consumption
WIP module for OSP routing resource charge
Final product costed at new period cost of $1,030
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Lessons Learned: Reports
Opnext Warning! When so many transactions are uncosted for days
or weeks, some INV reports might show inaccuratehistorical balances:
Transaction Value Historical Summary Transaction Balance Historical Summary
Cause: Reports fail to estimate cost of someuncosted WIP and PO Receipt transactions when
backing into historical balance Issue resolves itself as soon as CCD changes and
uncosted transactions become costed
Oracle Support never acknowledged this
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Report With Error
Uncosted WIP component issue of LASER7777 for$480,000 is missing from Job or Schedule column
28-FEB value of $-480,000 is incorrect; should be zero
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Lessons Learned: Intercompany Invoicing
The Create Intercompany AR Invoices programdoes not create a record until its parent record hasbeen costed
Parent record = Sales order issue material
transaction type [action = Issue from stores] The CCD indirectly defers creation of intercompany
A/R invoices in the new cost period when it directlydefers the costing of the parent record
Deferring of I/C A/R invoice creation allows Opnext toupdate the price list used for I/C invoicing in earlyApril or October
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Intercompany Invoicing Example
Intercompany InvoicingP
rocess Flow ForJapan Customer Sale Sourced from U.S. Inventory Org
JapanCustomer
J PAN SALESOperating Unit
. Japan Customer
Sales Ordersourced fromU.S. " EI" Org
. CustomerO Invoice
. Product S ipment
glo al drops ipment to
customer fromU.S. " EI" Org
. I C A/R Invoicecreated in U.S. F
. I/C A/P Invoicecreated in
JAPAN SALES
US
ANUFAC URINGOperating Unit
. CustomerPayment
. Payment orI/C Netting
Parent Record:rx type = Salesorder issue
Action = Issuefrom stores
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Price List for I/C A/R Invoices
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Additional Resources
Metalink note # 213628.1: What is the Cost CutoffDate?
Metalink bug # 3585271: INVTRHAN: HISTORICAL DATAQTY=0 BUT THE VALUE IS > 0
Metalink bug # 3480557: 11I INCIAR GETS APP-5706 WHENRUN ON END DATE OF PRICES APP-05706
ORAtips October 2005 Article: 11i Inventorys CostCutoff Date Defer CostingUntil Your Standard Costs
Have Been Updated! by Eric Guether
OAUG Connection Point 2004 presentation:Workorderless Completion for Simple Outside
Processing in 11iWIP by Eric Guether