Landed Cost Management (Draft)

Oracle LCM illuminates the hidden costs associated with complex supply chains. It automatically captures and itemizes extended costs and charges such as freight, insurance, and brokerage fees as well as duties and taxes. Oracle LCM then immediately updates Inventory costs, which replaces the systems standard PO cost with the new landed cost as the basis for cost method calculations. This provides better item cost tracking and creates more accurate profitability reports. Furthermore, LCM users can identify additional cost reduction opportunities simply by viewing the per unit breakdown of the items various cost factors or elements. Features: Charge Management Landed Cost Calculation Shipments Workbench Integrations with other Oracle modules

Oracle Landed Cost Management enables you to manage estimated and actual landed cost for an item purchased from a supplier. Using Oracle Landed Cost Management you can determine the "real" costs associated with acquiring items including insurance, transportation, handling, storage costs, container fees, and import or export charges. Knowledge and visibility into these trade costs help organizations better evaluate new product plans, price their items, and negotiate contracts with both suppliers and customers. Using Oracle Landed Cost Management you can first estimate the landed costs for the items and then you can update those costs with the actual landed costs as they become known. Oracle Landed Cost Management gives you the option to determine and calculate estimated landed costs before the receipt of the items into inventory (Landed Cost as a Pre-Receiving Application) or after the receipt of the item into inventory (Landed Cost Management as a Service). Then when you create and match invoices against those receipts this price information is used to calculate the actual landed costs for the item. Within Oracle Landed Cost Management you can view the estimated and actual landed costs for an item side by side. This gives you valuable information about the landed cost for an item and where cost improvement can made.

During the processing of landed costs using Oracle Landed Cost Management, inventory valuations for various cost methods are maintained providing better visibility into individual items profitability and an organizations outstanding exposure. This data provides insight for item forecasting and budgeting and provides clear evidence of the detailed accumulation of expenses for regulatory requirements and reporting. Landed Costs Accounting What are the accounting entries in a Procure to Pay cycle when the PO shipment is enabled for Landed Cost Management (LCM)? 1. Receive the PO with estimated landed cost calculated - Receiving Inspection a/c DR @ Estimated Landed Cost - AP Accrual a/c CR @ PO Price inclusive of Non-Recoverable tax - Landed Cost Absorption a/c CR @ (Estimated Landed cost PO Price inclusive of NonRecoverable tax) (This a/c is defined in Receiving options) These accounting entries can be viewed from Receiving Transaction summary > Transactions > Tools > View Accounting These entries get created in rcv_receiving_sub_ledger 2. Deliver the PO to Inventory destination For Standard Costing organization - Material Valuation a/c DR @ Std Cost - Receiving Inspection a/c CR @ Estimated Landed Cost - Purchase Price Variance a/c DR @ difference between Std Cost and Estimated Landed Cost For Average Costing organization Material Valuation a/c DR @ Estimated Landed Cost - Receiving Inspection a/c CR @ Estimated Landed Cost These entries can be viewed from Inventory > Material Transactions > Distributions These entries get created in mtl_transaction_accounts 3. Invoice validated and actual landed cost calculated Once the Actual Landed Cost is calculated, LCM will populate this information in cst_lc_adj_interface with rcv_transaction_id corresponding to the receipt to which the invoice is matched. Then the adjustment entries would get created as given below on running the Landed Cost Adjustment Processor Landed cost Adjustment Receiving - Receiving Inspection a/c DR @ difference between Actual LC and Estimated LC - Landed Cost Absorption a/c CR @ difference between Actual LC and Estimated LC Landed cost Adjustment Delivery (Standard Costing) - Receiving Inspection a/c CR @ difference between Actual LC and Estimated LC - Purchase Price Variance a/c DR @ difference between Actual LC and Estimated LC These accounting entries can be viewed from Receiving Transaction summary > Transactions > Tools > View Accounting These entries get created in rcv_receiving_sub_ledger Landed cost Adjustment Delivery (Average Costing) - Receiving Inspection a/c CR @ difference between Actual LC and Estimated LC - Landed Cost Absorption a/c DR @ difference between Actual LC and Estimated LC Average Cost Update (Average Costing) - Material Valuation a/c DR @ difference between Actual LC and Estimated LC - Landed Cost Absorption a/c CR @ difference between Actual LC and Estimated LC If this Average cost update happens for updating the item cost with the difference between Actual and Estimated landed cost for an item which has 0 or negative on-hand quantity, then the accounting entries would be as follows:

- Material Valuation a/c DR @ 0 - Landed Cost Absorption a/c CR @ difference between Actual LC and Estimated LC - Landed Cost Variance a/c DR @ difference between Actual LC and Estimated LC (This a/c is defined inventory > Set up > Organization > Parameters) These entries can be viewed from Inventory > Material Transactions > Distributions These entries get created in mtl_transaction_accounts The link between the Receiving transaction and Average Cost update is done through txn_source_line_id. Rcv_transaction_id of deliver transaction is stamped as txn_source_line_id in mtl_material_transactions for the LCM adjustment transaction which has the transaction type as Average Cost Update. 4. Create accounting for item invoice - AP Accrual a/c DR @ PO Price - Tax a/c DR @ tax rate - Liability a/c CR @ Invoice Price including tax - LCM:Invoice Price Variance a/c DR @ difference between PO Price and Invoice Price (This IPV a/c is defined in Receiving options) - LCM:Exchange Rate Variance a/c DR @ difference between receipt exchange rate and Invoice exchange rate (This ERV a/c is defined in Receiving options) 5. Create accounting for charge invoice - Default Charge a/c DR @ invoice price (This charge a/c is defined in Receiving options) - Liability a/c CR @ invoice price 6. Perform Return transaction or negative correction after invoice is accounted and actual landed cost is calculated Return to Vendor /Negative Correction - Receiving Inspection a/c CR @ Actual Landed Cost - AP Accrual a/c DR @ PO Price + Non-Recoverable Tax - Landed Cost Absorption a/c DR (Actual Landed Cost {PO Price+Non-Recoverable Tax}) These accounting entries can be viewed from Receiving Transaction summary > Transactions > Tools > View Accounting These entries get created in rcv_receiving_sub_ledger Return to Receiving/Negative Correction (Standard Costing) - Material Valuation a/c CR @ Std Cost - Receiving Inspection a/c DR @ Actual Landed Cost - Purchase Price Variance a/c CR @ difference between Std cost and Actual Landed Cost Return to Receiving/Negative Correction (Average Costing) - Material Valuation a/c CR @ Actual Landed Cost - Receiving Inspection a/c DR @ Actual Landed Cost These entries can be viewed from Inventory > Material Transactions > Distributions These entries get created in mtl_transaction_accounts 7. Raise a Debit Note - AP Accrual a/c CR @ PO Price - Tax CR @ tax rate - Liability a/c DR @ Invoice Price including tax - Invoice Price Variance a/c CR @ difference between PO price and Invoice Price

Note:

Estimated and Actual Landed Cost are always inclusive of PO price and NonRecoverable tax. Landed Cost Absorption account need not be having zero balance at the end of this procure to pay cycle in LCM enabled organization. It will be zero only if default charge a/c defined in Receiving options is same as the landed cost absorption a/c and Actual landed cost is same as the Estimated landed cost. Accounting entries for Expense POs and Shop floor destination POs has no impact as Landed Cost Management is not applicable for Purchase Orders with Expense and Shop floor destination. Landed Cost Management has no impact on the Encumbrance Accounting as the PO gets reserved at PO price and it gets reversed at PO price only even though the actual charge account get hit at landed cost. Retroactive Pricing is not supported in LCM enabled organization and hence retroactive price update program will not create the retroactive price adjustment entries in Receiving subledger for the receiving transactions created.