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2012 Oracle Corporation Proprietary and Confidential

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<Insert Picture Here>

Guide to Understanding Setup, Cost

Calculation in Periodic Average Costing

Comments/ Feedback to:

Divya Sudhakaran divya.sudhakaran@oracle.com

Safe Harbor Statement

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2012 Oracle Corporation Proprietary and Confidential

<Insert Picture Here>

Guide to Understanding Setup, Cost

Calculation in Periodic Average Costing

Comments/ Feedback to:

Divya Sudhakaran divya.sudhakaran@oracle.com

PART I
Introduction to Periodic Average Costing
Objectives
Terminology
PAC Setup
PAC Process
PART II
Cost Owned and Cost Derived Transactions
Understanding PAC Item cost calculation using some
simple cases and the impact of the nature of the
transaction on the Periodic Cost of the Item.

Periodic Average Costing is an option that enables

customers to value inventory on a periodic basis.
Periodic Costing is relevant for customers with
fiscal inventory reporting requirement as it is
invoice-based and allows you to include additional
invoiced charges in the cost of the item.
Periodic Costing is also used by customers who
want invoice-price based valuation of their
inventory to set standards or to update their
perpetual costs.

Three principal objectives of Periodic Costing:

To capture actual acquisition costs based on
supplier invoiced amounts plus other direct
procurement charges required by national legislation
or company policy
To capture actual transaction costs using fully
absorbed resource and overhead rates
To average inventory costs over a prescribed period,
rather than on a transactional basis

Customers having Inventory organizations that are of

the same Fiscal Entity (having the same tax
inscription number) need to have the same average
cost (legal requirement).
This means that to calculate the average cost of an
item that belongs to more than one inventory
organization, the periodic average cost calculation
has to Work across all organizations belonging to the
Fiscal Cost Group.
The inventory organizations belonging to the same
Fiscal Cost Group will then share the costing structure
and accounts.

 Cost Group (Organization Cost Group)

A group with one or more inventory organizations that
share same periodic item costs
Cost Type
Periodic Cost Type : Periodic Cost Type holds Periodic
Average item cost.
Periodic Rate cost type: Define resource rates,
department overheads.
Acquisition Cost
Sum of the costs associated with the acquisition of goods.
Include PO Price, Invoice Price, freight, special charges
and non-recoverable taxes.

 Cost Owned
Transactions that carry their own costs. Used to compute
periodic weighted average cost.
Example: PO Receipt, Return To Vendor, PO Distribution
Adjustment, MISC transactions with a value, and InterOrganization Transfer.

Cost Derived
Transactions that are transacted at the newly computed
periodic weighted average cost. These transactions do
not carry their own costs and do not contribute towards
periodic weighted average cost calculation.
Example: Account Issues, WIP issues, Return from WIP,
Material Issues, Cycle Count Adjustment, Physical
Adjustment, Sub-Inventory Transfer, Sales Order Issues, and
Misc. transactions w/o a user entered value.

Define Cost group, Cost Type

Org Cost Group / Cost Type Associations
Setup Inventory Organizations for each Cost
group, Cost Type Association attributes

Cost Type Associations, Accounting Options

Accounting Library
Post to GL

Periodic Account Assignments

Legal Entity / Cost Type / Cost Group
Material Category accounts
Cost Group accounts

Open PAC Period for Legal Entity, Cost Type

Set of Books
Vision Operations
(USA)
Legal Entity
Vision Operations
(USA)

Standard
Costing Org
M1

Standard
Costing Org
M2
PAC Cost Group: CG_XX

Item Master Org

Average
Costing Org
M3

Set of Books
Vision Operations
(USA)
Legal Entity
Vision Operations
(USA)

Average Costing
Org

Item Master Org

Standard
Costing Org

PAC_AVG (PAV)
PAC_STD (PST)
PAC Cost Group: DS_CG1

 Cost > Periodic Costing > Setup > Organization Cost

Group

Table: cst_cost_groups cost_group_type = 2

Periodic
Cost
Type

Periodic
Rates
Cost Type

 Cost > Periodic Costing > Setup > Org Cost Group /
Cost Type Associations

Table: cst_cost_group_assignments

Table: cst_le_cost_types

Cost > Periodic Costing > Setup > Org Cost Group / Cost Type
Associations > Accounting Options

Cost > Periodic Costing > Setup > Periodic Account Assignments

Table:mtl_fiscal_cat_accounts

Table:cst_org_cost_group_accounts

Cost > Periodic Costing > Setup > Periodic Account Assignments

If you receive below error while executing the Periodic

Cost Distributions Processor, then the accounts for
the specific Cost Type/ Cost Group has not been
defined correctly:
30005There are no accounts defined for the
category, for the cost type, cost group and legal
entity.

 Cost > Periodic Costing > Period Close Cycle >

Periodic Accounting Periods

Table:cst_pac_periods

Enter Transactions in the

Inventory Organizations
Run Periodic Acquisition Cost Adjustment Processor
(AP Invoices in the current PAC period
whose parent PO receipts are in prior PAC periods)

Run Periodic Acquisition Cost Processor

(AP Invoices and PO receipts in the current PAC period)

Run Periodic Cost Processor

- Compute Periodic Average Cost
Run Periodic Cost Distribution Processor
(Accounting options if enabled)

Transfer Periodic Cost Distributions to GL

(Accounting options if enabled)

 PAC Process is performed in 5 phases

Periodic Acquisition Cost Adjustment
Processor
Phase 1: Calculate Acquisition Cost

Periodic Acquisition Cost Processor

Periodic Cost Processor

Prior PAC period balance
Phase 2: Copy
Prior Period Balances

PAC low level codes with

WIP processing

Phase 3: BOM
Explosion
Resource Cost and Overhead Cost
Phase 4: WIP Job
Information Build
Phase 5: Periodic
cost process

Phase 6: Distribution
Processor(optional)

27

Copyright 2008, Oracle. All rights reserved.

PWAC calculation:
Cost owned, Cost derived,
WIP Job Close

Accounting distributions for all

PAC transactions

Cost > Periodic Costing > Periodic Close Cycle > Periodic
Accounting Periods

 Doc ID 1460062.1 - Periodic Average Costing - Setup

and Workflow

 Transactions that carry their own costs.

Used to compute periodic weighted average cost.
Example:
PO Receipt,
Return To Vendor,
PO Distribution Adjustment,
MISC transactions with a transaction cost ,
and Inter-Organization Transfer across periodic cost groups.
And more

 Transactions that are transacted at the newly computed

periodic weighted average cost.
These transactions do not carry their own costs and do not
contribute towards periodic weighted average cost
calculation.
Example:
Account Issues,
WIP issues,
Return from WIP,
Material Issues,
Cycle Count Adjustment,
Physical Adjustment,
Sub-Inventory Transfer,
Sales Order Issues,
Misc. transactions w/o a user entered cost
And more..

These tables store the item cost and quantity in a

given PAC period
CST_PAC_ITEM_COSTS
CST_PAC_ITEM_COST_DETAILS

Details/Organization Name

PST (Standard Costing)

PAV (Average Costing)

Quantity & Cost

0qty @ $20 (Frozen cost of

item defined at the time of Item
definition)

0qty @ $0

Miscellaneous Receipt

100 qty

100 qty @ $25

Quantity & Cost after above

100 qty @ $20 (Frozen)

100 qty @ $25

Since the Miscellaneous Receipt done in PAV was the only Cost Owned
Transaction, the cost provided at the time of the transaction becomes the only
basis for the PAC Item Cost
The receipt done in the Standard costing org was at the frozen cost itself and
we did not define a cost at the time of receipt, hence this falls under the
category of Cost Derived Transaction

> PST

> PAV

BUY_QUANTITY

MAKE_QUANTITY

ISSUE_QUANTITY

TOTAL_LAYER_QUA
NTITY

ITEM_COST

100

NA

-100

200

25

BEGIN_LAYER_QUANTITY+BUY_QUANTITY + MAKE_QUANTITY
ISSUE QUANTITY = TOTAL_LAYER_QUANTITY
0+100 + 0 (-100) = 200
Issue Quantity of -100 above denotes the Cost Derived transaction The
Miscellaneous Receipt of 100 done in PST (Standard Costing)
Buy Quantity of 100 denotes the Cost Owned Transaction - The
Miscellaneous Receipt of 100 done in PAV (Average Costing)
Note: The item is newly created and hence would not have any
begin_layer_quantity in the cst_pac_quantity_layers table. If there is a
beginning layer quantity, this would be considered while arriving at the total
layer quantity.
PAC ITEM COST: 25
[100 * 25]/ 100 = 25

BUY_QUANTITY column stores details regarding

Cost Owned Transactions
A Cost Owned Receipt would be a positive value
A Cost Owned Issue would be a negative value

ISSUE_QUANTITY column stores details regarding

the Cost Derived transactions.
A Cost Derived Receipt would be a negative value
A Cost Derived Issue would be a positive value

Details/Organization Name

PST (Standard Costing)

PAV (Average Costing)

Quantity & Cost

0qty @ $20 (Frozen cost of

item defined at the time of Item
definition)

0qty @ $0

Miscellaneous Receipt

100 qty

100 qty @ $25

Quantity & Cost after above

100 qty @ $20 (Frozen)

100 qty @ $25

Miscellaneous Issue

50 qty

50 qty @ $25

Now, we make a Miscellaneous issue of item PAC01 in PST for qty:50 Note that this would be a cost derived transaction
And in PAV for qty:50 providing same unit cost of 25 - Note that this would
be a cost owned transaction
What would be the Quantity and Cost now?

>PST

> PAV

BUY_QUANTITY

MAKE_QUANTITY

ISSUE_QUANTITY

TOTAL_LAYER_QUA
NTITY

ITEM_COST

50 (100 50)

NA

-50 (-100+50)

100(50+0-(-50))

25

BEGIN_LAYER_QUANTITY+BUY_QUANTITY + MAKE_QUANTITY
ISSUE QUANTITY = TOTAL_LAYER_QUANTITY
0+50 + 0 (-50) = 100
PAC ITEM COST: 25
[(100 * 25 ) (50 * 25)]/ 50 = 25
Issue Quantity of -50 is after considering the Miscellaneous Issue of 50
done in PST (Standard Costing) Cost Derived
Buy Quantity of 50 is after considering the Miscellaneous Issue of 50
done in PAV(Average Costing) Cost Owned
Item cost calculation takes into consideration the Cost Owned only which
is very clear from the above cost calculation

 What happens if My Cost Owned Misc Issue in PAV was @ 15

instead of 25?

Details/Organization Name

PST (Standard Costing)

PAV (Average Costing)

Quantity & Cost

0qty @ $20 (Frozen cost of

item defined at the time of Item
definition)

0qty @ $0

Miscellaneous Receipt

100 qty

100 qty @ $25

Quantity & Cost after above

100 qty @ $20 (Frozen)

100 qty @ $25

Miscellaneous Issue

50 qty

50 qty @ $25

Miscellaneous Issue

25 qty @ $15

Considering the previous question, we go ahead and do a Miscellaneous

Issue of the item PAC01 in PAV alone for Quantity 25 @ a unit cost of 15
This will once again be a Cost Owned Transaction

BUY_QUANTITY

MAKE_QUANTITY

ISSUE_QUANTITY

TOTAL_LAYER_QUA
NTITY

ITEM_COST

25(50-25)

NA

-50

75(25+0-(-50))

35

BEGIN_LAYER_QUANTITY+BUY_QUANTITY + MAKE_QUANTITY
ISSUE QUANTITY = TOTAL_LAYER_QUANTITY
0+25 + 0 (-50) = 75
PAC ITEM COST: 35
[(50 * 25) (25*15)]/ 25 = 35
Since there has been a Cost Owned Issue transaction, this will also be considered to
recalculate the PAC.
Cost Owned Transactions Value => 50*25 = 1250
Cost of the Misc Issue => 25*15 => 375
PAC => (1250-375)/25 = 35

Now, I make the issue in PAV, but dont give an unit cost.. What is the
impact?

Details/Organization Name

PST (Standard Costing)

PAV (Average Costing)

Quantity & Cost

0qty @ $20 (Frozen cost of

item defined at the time of Item
definition)

0qty @ $0

Miscellaneous Receipt

100 qty

100 qty @ $25

Quantity & Cost after above

100 qty @ $20 (Frozen)

100 qty @ $25

Miscellaneous Issue

50 qty

50 qty @ $25

Miscellaneous Issue

25 qty @ $15

Miscellaneous Issue

15 qty and provide no unit cost

at the time of issue

We go ahead and do a Miscellaneous Issue of the item PAC01 in PAV alone

for Quantity 15 without providing a unit cost.
Note that this is now a Cost Derived Transaction

BUY_QUANTITY

MAKE_QUANTITY

ISSUE_QUANTITY

TOTAL_LAYER_QUA
NTITY

ITEM_COST

25

NA

-35 (-50+15)

60(25+0-(-35))

35

BEGIN_LAYER_QUANTITY+BUY_QUANTITY + MAKE_QUANTITY
ISSUE QUANTITY = TOTAL_LAYER_QUANTITY
0+25 + 0 (-35) = 60
PAC ITEM COST: 35
- As there has been no Cost Owned Transactions in this run and the earlier
derived PAC of 35 is retained.

 Transaction Type: Purchase Order

Since this is a transaction with its own cost, the transaction would fall
into the Cost Owned transaction category and contribute towards the
Periodic Item cost calculation.
Transaction Type: Sales Order Issue
This transaction takes the existing cost and does not update the
transaction cost. Hence, this transaction would fall into the Cost
Derived transaction category.
Transaction Type: WIP Completion & WIP Component Issue
The WIP Completion transaction of is a Cost Owned transaction & WIP
Component issue would be a Cost Derived transaction
Detailed examples available in Whitepaper published:
PAC: Understanding Periodic Item cost calculation
- An Oracle White Paper (Doc ID 1473592.1)

BUY_QUANTITY column stores details regarding

Cost Owned Transactions
A Cost Owned Receipt would be a positive value
A Cost Owned Issue would be a negative value

ISSUE_QUANTITY column stores details regarding

the Cost Derived transactions.
A Cost Derived Receipt would be a negative value
A Cost Derived Issue would be a positive value

Table mtl_pac_actual_cost_details would store details

as to the nature of the transactions under the
txn_category column specific to each transaction_id.

TXN_CATEGORY in MPACD

TXN_CATEGORY Value

Period Beginning

Cost Update(s): New Cost or

Percent Change

Cost Owned Transaction(s)

Cost Update(s): Value Change

Rework Completion(s)

Rework Issue(s)

Non-Rework Completion(s)

Cost Derived Transaction(s)

10

Period Ending

Inter-Organization Transaction(s):
Iteration Process

How PAC process transactions (Doc ID 759522.1)

FREQUENTLY ASKED QUESTIONS PERIODIC
AVERAGE COST AND PERIODIC ABSORPTION
COSTING (PAC/PACP/IPAC) (Doc ID 559123.1)
Periodic Actual Cost Processing Logic: An Oracle
White Paper (Doc ID 245487.1)
Thanks to Costing Development & Support Team

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