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For make items, in an average costing environment, the value of any receipt into sub-inventory
through WIP Assembly Completion can be derived using actual cost incurred or some predefined
cost. A note on the same has been provided in this paper. An attempt has been made to understand
the way in which cost of a make item is on Completion is derived for a manufactured item through
this paper. This paper also provides an insight into the WIP Value Summary generated by
transactions with different setups.
SCOPE
======
This paper has been authored keeping in view an audience familiar with Oracle Cost Management
in general and Average Costing method in particular.
An attempt has been made to explain the functionality of how cost is relieved in WIP under Average
Costing method with different setups. 6 scenarios have been covered using various possible setup
combinations.
OVERVIEW
==========
Before we take off with the scenarios, an overview of a few topics has been provided to facilitate
the understanding of the entire breadth of this paper.
Cost Elements
To begin with, let us look at the various cost elements present in Cost Management.
The unit cost of any item is the sum of the costs of all the cost elements. There
are 5 cost elements:
Material
Material Overhead
Resource
Overhead
Outside Processing
Cost Type
A cost type is a set of costs uniquely identified by name. In Average Costing method, ‘Average’ is
the seeded cost type. The unit cost in this cost type is used for calculating the accounting value for
any transaction.
Apart from this, we define another ‘Rates Cost Type’, the cost of which will be used for resources
and overheads. To determine the ‘Rates Cost Type’ for a given organization, the Navigation is as
follows:
Inventory -- Setup -- Organization --Parameters -- Costing Information (T).
Cost Incurred
Cost Incurred is the actual cost that was incurred to build an assembly. It includes the sum of all
the material transactions and the resource transactions that has taken place for a particular job.
Cost Relieved
Cost Relieved is the cost associated with the make item at the time of Assembly Completion. This
cost depends upon some setup combinations that will be studied in this paper.
SETUP
======
There will be requirement for component ‘C-Comp’ while manufacturing the assembly item ‘C-
Assembly’. We will perform a miscellaneous Receipt for the component to increase the inventory.
TEST CASES
We shall demonstrate six test cases. Each case would highlight certain points that would provide
us with an understanding of how the WIP Costing logic works in Average Costing.
Case1:
No cost is associated to ‘Avg Rates’ cost type for the resource as seen in Fig 2.
Case2:
Perform the Move transaction. The resource transaction would also have happened.
Perform WIP Component Issue for 'C-Comp'
Complete the Job using WIP Assembly Completion by unchecking the Final Completion Flag.
Since the completion source is user defined, the Cost Relieved will be based on the Cost of the
Assembly for the cost type defined in WAC ('Pending' in our case).
Since there was no cost defined for pending cost type for the assembly item, the cost relieved is
zero.
Now define a cost of 5 for Pending cost type for the assembly item ‘C-Assembly’
Case3:
Unit cost of 3 is associated to ‘Avg Rates’ cost type for the resource.
Unit cost of 3 is associated to ‘Avg Rates’ cost type for the resource.
Since the System Option is ‘Use Actual Resources’ and there was a resource transaction
performed, the cost relieved is including the cost of the component ‘C-Comp’ as well as that of the
resource.
Here cost incurred will be:
Material - 2
Resource - 3
Unit cost of 3 is associated to ‘Avg Rates’ cost type for the resource.
Perform a move-complete transactions using move transaction form. The resource transaction
would not have happened.
Since the System Option is ‘Use Pre-defined Resources’, hence even though there was no resource
transaction performed, the cost relieved is still including the cost of the resource along with the
Component cost.
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