Overview of Oracle Discrete Costing For MFG v2

Overview of Discrete Costing for
Manufacturing
OAUG MFG Discrete SIG Meeting

November 10, 2010
Douglas Volz
Douglas Volz Consulting
doug@volzconsulting.com
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
Helping people using Oracle Applications since 1990 Slide 2

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

Inventory Structure
 Global Organization (Item Master) Global
Organization
(Item Master)
 Inventory Organization
Inventory HDQTRS
 Subinventory Organization Location
 Locators
FG STORES MRB WIP
Subinventory Subinventory Subinventory Subinventory
Locators Locators

Complex Financial Entities
Corporate
Consolidated Corporate Consolidated Ledger
Ledger (USD)
Secondary Switzerland European

Ledger (CHE) LSP’s
LSP’s
SLs
Korea Asia-Pac Swiss PL European PL USA PL

Primary
(KRW) LEs (USD) (USD) (USD)
Ledger
Other CORP Other

Legal Entity Korea LE Asia-Pac Swiss LE LE
European LEs
LEs LEs
Operating Asia-Pac Switzerland Other

Unit Korea OU European US OU
OUs OU
OUs
Inventory
Orgs Asia-Pac Swiss Dist. Europe US LSP
ORG Dist. Centers Center LSP Orgs Orgs
Korea
Item
Switzerland Europe Dist. US Dist.
Master
Org Centers Centers
(ZZZ)

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

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
PUR provides PO's
and Receipts
BOM's/Routings for Roll Up
ACCOUNTS PURCHASING
PAYABLE Invoices/ INV Receipt
COST
Payments Trans & Costs
Exp Accr MANAGEMENT
Values Trans
Asset
Values INV
Additions
Stds Adj ENGINEERING
Delivery
Items
Trans
Values
Trans
Asset Cost BOM's
FIXED GENERAL Inventory/
Accum Depr INVENTORY
ASSETS LEDGER WIP Trans
Depr Exp
WIP Consumption & ENG Items

WIP Completions planned in
MRP
Invoices/
WORK IN BILL OF
Cash Receipt Matl Requirements
Shipment PROCESS MATERIAL
Trans
Transactions
ACCOUNTS
CASH RECEIVABLE
MANAGEMENT WIP Supply
(Bank Recon) to MRP
MRP Release
Items from BOM's
Misc Trans to WIP
for Warranty MRP
Repair Parts
Invoice
Info ORDER
S/O Requirements
ENTRY
Repair
RMA's
SERVICE

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 Previous-level costs

@ actual usage - @ standard = Material usage variance
Resource - Resource = Resource efficiency
Outside processing
Outside processing - Outside processing = efficiency
Overhead - Overhead = Overhead efficiency
Sources of:
• Components issued • WIP completions
• Resources earned @ standard rolled
• OSP earned up costs
• Overheads earned
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
Accounting
Configurations
Subledger
Transactions Journal Entries
GL
Accounting Journal Entries
Program and Balances
Accounting Events Subledger

Balances
Journal Entry Setup
Cost Management SLA

Basic Table Structure for SLA
Module
Enter Transaction(s) Specific One Common
Transaction Accounting
Accounting Subledger
Tables Table
Accounting
Processor
SLA Accounting Tables G/L Tables

Transaction
Accounting Tables
GL_LEDGERS
XLA_EVENTS
Receiving GL_JE_BATCHES
Create XLA_AE_HEADERS GL_
Material Accounting INTERFACE
WIP
GL_JE_HEADERS
XLA_AE_LINES
XLA_DISTRIBUTION GL_JE_LINES
_LINKS

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.
Deferred “True”
Inventory COGS COGS
1. Customer Shipment 10 10
2. COGS Recognition 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

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

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

Standard Features:
 Open Period Control request

Standard Features:
 Close Period Control request

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

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
Standard Features:
Transaction Value Historical Summary

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

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!)

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 Experience

 Multi-organization, Multi-currency ERP  Sample of clients served:
Implementations  Beckman Coulter (US)
 Project Management and Senior Project Advisor  Matsushita (UK, Mexico)
 Core manufacturing processes  NTL (now Virgin Media)
 Cost Management  Logitech (US, Taiwan, P.R.C.)
 Inventory
 Celgene Corporation (US)
 Bills of Material
 WIP  NTL (UK, now Virgin Media)
 Systems Integration and Data Conversions  TCI International (US)
 Onninen AS (Norway)
End of Presentation

Overview of Oracle Discrete Costing For MFG v2

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Overview of Discrete Costing for

OAUG MFG Discrete SIG Meeting

 High Level Review of Oracle Cost System Capabilities

 Discrete MFG and Costing

 Setting Standard Costs

 Setting Average, FIFO, LIFO Costs

 Month-End Accounting Close

Helping people using Oracle Applications since 1990 Slide 2

 Flexible Account Number Assignment

 Little Known Cost Features

Helping people using Oracle Applications since 1990 Slide 3

Helping people using Oracle Applications since 1990 Slide 4

Secondary Switzerland European

Korea Asia-Pac Swiss PL European PL USA PL

Other CORP Other

Operating Asia-Pac Switzerland Other

Helping people using Oracle Applications since 1990 Slide 5

Helping people using Oracle Applications since 1990 Slide 6

 Unit costs reflect the average of the incoming receipts from

 All issues occur at the existing average costs

 You may have indirect costs (material overheads, etc.) as well

Helping people using Oracle Applications since 1990 Slide 7

 All manufacturing and distribution activities are measured against

Helping people using Oracle Applications since 1990 Slide 9

Helping people using Oracle Applications since 1990 Slide 10

 Each inventory organization can have its own costing method

Helping people using Oracle Applications since 1990 Slide 11

 Only use the cost elements you need

 But you can have an unlimited number of sub-elements

Helping people using Oracle Applications since 1990 Slide 12

WIP Consumption & ENG Items

Helping people using Oracle Applications since 1990 Slide 13

 More Costing for Inventory Movement

 Supports many intercompany scenarios

 Costs into WIP:

 Costs out of WIP

 Job Close Variances

Helping people using Oracle Applications since 1990 Slide 15

Previous-level costs Previous-level costs

Resource - Resource = Resource efficiency

Overhead - Overhead = Overhead efficiency

 Material Distribution Detail/Summary Reports

 WIP Account Detail/Summary Reports

 Discrete Job Value

 Expense Job Value Report

 WIP Value Report

 WIP Value Inquiries

Helping people using Oracle Applications since 1990 Slide 17

 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

Helping people using Oracle Applications since 1990 Slide 18

 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

Helping people using Oracle Applications since 1990 Slide 19

 Month-End Inventory, Receiving, WIP Value Reports

 Release 12, close in Inventory