Oracle Process Manufacturing

Costing Methods

A.F.Ferguson & Co.

Agenda
• Overview of Costing Methods

• Procure to Pay Accounting Entries
• Material Issuances & WIP Accounting Entries • Sale Order Issue Accounting Entries.

Overview of Costing Methods

Overview of Costing Methods
Oracle provides following costing methods for valuation of Finished Goods.  Periodic Moving Average Cost (PMAC)  Periodic Perpetual Average Cost (PPAC)

 Periodic Weighted Average Cost (PWAC)

Periodic Moving Average Cost (PMAC)

OPM calculates the average cost for the period while moving previous period's cost with last period's inventory balance and cost:
PMAC is calculated by dividing the result of -- the quantity of the prior period inventory balance multiplied by the prior period cost, plus the sum of the transaction quantity multiplied by price -- by the prior period inventory balance plus the sum of transaction quantity, as shown in the following illustration.

• • • •

Where: Prior Period Inv Balance - This is the prior period inventory balance. Prior Period Cost – This is the prior period actual cost. Trans Qty - Receipt Transaction Quantities within the costing period.

Price - Receipt estimated prices or AP invoice final prices within the costing period.

PMAC (Example)

Periodic Perpetual Average Cost (PPAC)
• The perpetual weighted average cost type computes the average cost for the entered receipts and quantities within the defined boundaries of the cost calendar.

Where;
• Trans Qty - Receipt Quantities from the start of the costing calendar to the end of the current period. • Price - Receipt estimated prices within the costing calendar.

PPAC (Example)

Periodic Weighted Average Cost (PWAC)
• This is the strict average cost of the raw material during the period, based on the total estimated receipt (or invoiced) price for the entire inventory quantity. The period weighted average cost is a strict average cost for the period based on Period Total Quantity and Estimated or Final Prices. PWAC is calculated by dividing -- the sum of the transaction quantity multiplied by price -- by the sum of transaction quantity, as shown in the following illustration:

• • •

Where: Trans Qty is Receipt Quantities or AP interfaced quantities within the costing period Price - Receipt estimated prices or AP invoice final prices within the costing period

PWAC (Example)

Cost Components
• Material Cost • Resource Cost • Overheads Cost • Cost Allocated through GL Expense Allocations. • Invoice Price Variance • Exchange Rate Variance • Unit Cost Adjustments

Example

Material Cost in Ammonia can be derived from following:
Natural Gas feed


              

Natural Gas fuel
Steam Process air Demin water Electric Power instrument Air Plant Air cooling water Nitrogen Catacarb-400 H Catacarb-100 H Antifoam-WBU Potassium Carbonate hydrazine Trisodium phosphate Activated carbon

• • 
 

Resource Cost can be used to track cost of a particular resource Cost Allocated though GL Expense Allocation will include;
Salaries Basic Overtime Cash Benefits


      

Retirement Benefits
Insurance Depreciation Natural Gas - Fixed charges PFL Foreign Eng./ Tech Maintenance Stores & POL Hired Labour Travelling

Overview of Procure to Pay Entries

Brief Overview of Procure to Pay Entries
• • Enter PO: Accounting Impact Nil Enter a receipt:
Inventory Receiving Account-Dr.
AP Accrual Account-Cr.

Delivery to Stock:
Inventory Account-Dr. Inventory receiving account-Cr.

Enter PO Matched Invoice:
AP Accrual Account-Dr.

Supplier Liability Control Account-Cr.

Enter payments against the invoice:
Supplier Liability Account-Dr. Cash / Bank Account-Cr.

Material Issuances & WIP Accounting Entries

Miscellaneous Receipts, Account Receipts, Account Alias Receipts
Account Title Inventory Debit [Transaction Qty x Organization Total Item Cost] [Transaction Qty x Organization Total Item Cost] Credit

Offset Account

Miscellaneous Issue, Account Issue, Account Alias Issue
Account Title Inventory Debit Credit [Transaction Qty x Organization Total Item Cost] [Transaction Qty x Organization Total Item Cost]

Offset Account

WIP material charging
Journal Line Type INV Debit Credit [Actual Ingredient Input Qty x Batch Organization Total Item Cost] [Actual Ingredient Input Qty x (Organization Item Total Material Cost)]

WIP

Resource charging
Journal Line Type RCA Debit Credit [Actual Ingredient Input Qty x Batch Organization Total Item Cost] [Actual Ingredient Input Qty x (Organization Item Total Material Cost)]

WIP

Completion entry
Journal Line Type INV Debit [Actual Product Output Qty x Organization Total Item Cost] [Actual Product Output Qty x (Organization Item Material Cost + Organization Item Resource Cost)] Credit

WIP

OVH

[Actual Product Output Qty x (Organization Item Overhead Cost)]
[Actual Product Output Qty x (Organization Item GL Allocation Cost

ALC

Accounting Entries for Average Cost Adjustment
Account Title INV Debit Adjustment Quantity * (Adjustment Cost - Item Cost) Adjustment Quantity * (Adjustment Cost - Item Cost) Credit

CAD

Accounting Entries for Value Adjustment
Account Title INV CAD Debit Adjustment Value Adjustment Value Credit

Accounting Entries for Unit Cost Adjustment
Account Title INV Debit Actual Cost Calculation Quantity * Unit Cost Adjustment Actual Cost Calculation Quantity * Unit Cost Adjustment Credit

CAD

Sale Order Issue

Accounting Entries in case of Sale Order Issue
Journal Line Type Deferred COGS Debit Transaction Qty x Item Cost Transaction Qty x Item Cost Credit

INV

Journal Line Type
COGS

Debit
Transaction Qty x Item Cost

Credit

Deferred COGS

Transaction Qty x Item Cost

Costing Method Finalized in FFCL
• PMAC is the finalized costing mechanism in Fatima Fertilizer Company .

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